26-4. Suppose GDP is $8 trillion, taxes are $1.5 trillion, private saving is S0.

Question

26-4. Suppose GDP is $8 trillion, taxes are $1.5 trillion, private saving is S0.5 trillion, and public saving is $0.2 trillion. Assuming this economy is closed, calculate consumption, government purchases, national saving, and investment. You have various parts of the equation GNP C (consumption) + I (Investment) + G (Government Purchases) +NE (Net exports) What is the formula for Private Saving Private S -C What is the formula for Public Saving Public ST -G So I suggest you solve for Private & Public Saving first Light Blue Highlight Rows are vour responsibility Private S- -T -C Public S Now solve GNP (Closed) GNP +I Answer the question Consumption Government purchases National saving Investment

Explanation / Answer

Answer

Private saving = Y - C - T = 0.5 -----------------(1)

Public Saving = T - G = 0.2------------------(2)

From (1)

Consumption = 8 - 1.5 - 0.5 = 6 Trillion

From (2)

Government Expenditure = T - 0.2 = 1.5 - 0.2 = 1.3 Trillion

National Saving = Y - C -T + T - G = Y - C - G

= 8 - 6 - 1.3 = 0.7 Trillion

In Closed economy Saving = Investment

Hence Investment = 0.7 Trillion

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