Question

In: Economics

Is it possible that PE > GDP in a given year in a closed economy if...

Is it possible that PE > GDP in a given year in a closed economy if some aggregate expenditure falls on output produced in the previous year? Please explain in detail with different possibilities.

Solutions

Expert Solution

It is possible in a closed economy that the public expenditure is more than the Gross Domestic Product in the economy. In a closed economy the Gross Domestic Product(GDP) = C+I+G

where C= Consumption expenditure

I= Investment

G=Government expenditure.

In the closed economy there is no trade to the outside economy.

In the closed economy the investment I= Private Savings + Public Savings.

Here, the public expenditure can be increased through the public borrowing. The main sources for public borrowing in the closed economy is explained below:

So in the closed economy the government can able to increase the public expenditure more than GDP by increasing its savings, reduce the tax rates, issue government securities to the public(within the economy), borrowing from the central bank of the economy, borrowings from individuals etc.

So the increase in public expenditure more than the GDP in a closed economy is possible.  


Related Solutions

Assume that GDP (Y ) is 5,000 in a closed economy. Consumption (C) is given by...
Assume that GDP (Y ) is 5,000 in a closed economy. Consumption (C) is given by the equation C = 1,200+0.3(Y −T)−50r, where r is the real interest rate, in percent. Investment (I) is given by the equation I = 1, 500 − 50r. Taxes (T ) are 1,000, and government spending (G) is 1,500. (a) What are the equilibrium values of C, I, and r? (b) What are the values of private saving, public saving, and national saving? (...
Given the following data for a hypothetical closed economy: Real GDP (GDP = Y) Taxes Yd...
Given the following data for a hypothetical closed economy: Real GDP (GDP = Y) Taxes Yd C S I G AE 200 50 190 80 50 250 50 220 80 50 300 50 250 80 50 350 50 280 80 50 400 50 310 80 50 450 50 340 80 50 500 50 370 80 50 550 50 400 80 50 600 50 430 80 50 650 50 460 80 50 700 50 490 80 50 Fill-in the table. Determine...
Given the following data for a hypothetical closed economy: Real GDP (GDP = Y) Taxes Yd...
Given the following data for a hypothetical closed economy: Real GDP (GDP = Y) Taxes Yd C S I G AE 200 50 190 80 50 250 50 220 80 50 300 50 250 80 50 350 50 280 80 50 400 50 310 80 50 450 50 340 80 50 500 50 370 80 50 550 50 400 80 50 600 50 430 80 50 650 50 460 80 50 700 50 490 80 50 Fill-in the table. Determine...
Given the following data for a hypothetical closed economy: Real GDP (GDP = Y) Taxes Yd...
Given the following data for a hypothetical closed economy: Real GDP (GDP = Y) Taxes Yd C S I G AE 200 50 190 80 50 250 50 220 80 50 300 50 250 80 50 350 50 280 80 50 400 50 310 80 50 450 50 340 80 50 500 50 370 80 50 550 50 400 80 50 600 50 430 80 50 650 50 460 80 50 700 50 490 80 50 Fill-in the table. Determine...
Suppose that the closed economy of an island H is described by the following equations: GDP...
Suppose that the closed economy of an island H is described by the following equations: GDP (Y) = 10000, government expenditures (G) = 600, Taxes (T) = 2000, Consumption (C) = 400 + 3/4 (Y-T), and investment (I) = 200 – 1400 r a. Write and explain the equation of the GDP b. Compute 1. Private saving 2. Public saving 3. National saving 4. Equilibrium interest rate c. What can you conclude about the economy of Island H?
Compare the effect on GDP of an adverse demand shock in the closed and open economy...
Compare the effect on GDP of an adverse demand shock in the closed and open economy cases using graphs based on the open economy IS-MP model. Assume flexible rate.
5. Suppose that in a closed economy GDP is $1,100 million, consumption is $750 million, and...
5. Suppose that in a closed economy GDP is $1,100 million, consumption is $750 million, and taxes are $200 million. What value of government purchases would make national savings equal to $100 million and at that value would the government have a deficit or surplus? A. $100 million, deficit B. $100 million, surplus C. $150 million, surplus D. $250 million, deficit E. $250 million, surplus 6. Which of the following statements is (are) correct? (x) If an economy is closed...
At equilibrium real GDP in a private closed economy, Multiple Choice the MPC must equal the...
At equilibrium real GDP in a private closed economy, Multiple Choice the MPC must equal the APC. the slope of the aggregate expenditures schedule equals the MPS. aggregate expenditures and real GDP are equal. planned saving and consumption are equal. Government actions that were taken in order to stimulate the economy during the Great Recession of 2007–09 included the following, except Multiple Choice a significant reduction of interest rates to nearly zero. a large increase in transfer payments. an increase...
Scenario 26-A. Assume the following information for an imaginary, closed economy. GDP = $110,000 Consumption =...
Scenario 26-A. Assume the following information for an imaginary, closed economy. GDP = $110,000 Consumption = $70,000 Private Saving = $8,000 National Saving = $12,000 1. Refer to Scenario 26-A. For this economy, what is the tax amount? Show your work. 2. Refer to Scenario 26-A. For this economy, investment is what amount? . 3 Refer to Scenario 26-A. In this economy is the government running a Surplus or Deficit and what is the amount? 4. Refer to Scenario 26-A....
Suppose the U.S. has a closed economy with GDP (Y) equal to $19.4 trillion, consumption (C)...
Suppose the U.S. has a closed economy with GDP (Y) equal to $19.4 trillion, consumption (C) equal to $12.4 trillion, government spending (G) equal to $3.4 trillion, transfer payments (TR) equal to $1.6 trillion, and taxes (T) equal to $4.7 trillion. Suppose the government increases its spending on national defense such that government spending increases by $0.2 trillion. What must happen to total savings (S)? That is, what is the dollar amount by which total savings changes? Assume the values...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT