Suppose a country has total GDP ( Y ) = $12 trillion, consumption = $7 trillion,

Question

Suppose a country has total GDP (Y) = $12 trillion, consumption = $7 trillion, government spending = $3 trillion, investment = $2 trillion, and taxes = $1.6 trillion.

Instructions: Round your answers to one decimal place and include a negative sign if necessary.

a. What is the level of net exports or balance of trade?

    $ __ trillion.

b. What is the level of public savings?
    
     $ __ trillion.

c. What is the level of private savings?

     $ __ trillion.

d. What is the level of net capital outflow?

     $ __ trillion.

Explanation / Answer

the equation of aggregate demand is given as :

Y = C + I + G + NX.

a. Plugging in the values of all the given variables, we get,

12 = 7 + 3 + 2 + NX

12 = 12 + NX

NX = 0.

The balance of trade balances, that is, exports is equal to imports.

b. Public savings = Taxes - government spending

Public savings = 1.6 - 3

Public savings = -$1.4 trillions.

c. Private savings = Y - T - C

Private savings = 12 - 1.6 - 7

Private savings = $3.4 trillions.

d. Net capital outflow = 0.

This is because there is balanced trade, and also, savings(public+privtae) = investment

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