Suppose GDP is $12 trillion, taxes are $3.6 trillion, privatesaving is $1.5 trillion, and public...

Suppose GDP is $12 trillion, taxes are $3.6 trillion, private saving is $1.5 trillion, and public saving is $0.8 trillion.

Assuming the economy is closed, complete the following table by calculating consumption, government purchases, national saving, and investment.

Component	amount(trillions of dollars)
consumption
government purchases
national savings
investment

Solutions

Expert Solution

Ans.

Private savings, PR = GDP - Consumption- Taxes

Public savings, PB = Taxes - Government Purchases

National Savings, NS = PR + PB

and National Income identity in a closed economy gives,

=> NS = Investment

Using above concepts,

a) PR = 1.5 trillion = 12 trillion - Consumption- 3.6 trillion

=> Consumption = $6.9 trillion

b) PB = 0.8 trillion = 3.6 trillion - Government purchases

=> Government purchases = $2.8 trillion

c) National Savings = PR + PB = 1.5 + 0.8 = $2.3 trillion

d) National Savings = Investment = $2.3 trillion

Rahul Sunny answered 1 year ago

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