Question

Saving and investment in the national income accounts

The following table contains data for a hypothetical closed economy that uses the dollar as its currency.

Suppose GDP in this country is $1,680 million. Enter the amount for investment.

National Income Account	Value
	(Millions of dollars)
Government Purchases (GG)	400
Taxes minus Transfer Payments (TT)	360
Consumption (CC)	1,000
Investment (II)

Complete the following table by using national income accounting identities to calculate national saving. In your calculations, use data from the preceding table.

National Saving (S)National Saving (S)	=  =
	=  =
		million

Complete the following table by using national income accounting identities to calculate private and public saving. In your calculations, use data from the initial table.

Private SavingPrivate Saving	=  =
	=  =	million

Public SavingPublic Saving	=  =
	=  =	million

Based on your calculations, the government is running a budget   .

Answer 1

Investment (I)= Y - C - G = 1680 - 1000 - 400 = $280 million

National savings = I = $280 million

Private savings = Y - C - TT = 1680 - 1000 - 360 = $320 million

Public Savings = TT - G = 360 - 400 = -$40

Based on your calculations, the government is running a deficit budget.

Because G > TT