What is the relationship between national saving and investment in a closed economy? Start by explaining...

What is the relationship between national saving and investment in a closed economy? Start by explaining what is a closed economy.

Solutions

Expert Solution

# What is closed Economy?

In closed Economy there are no imports and exports which means

Y = C + I +G

# What is the relationship between national saving and Investment in closed economy?

Case - 1 When there are no taxes

Y - C -G = I

Here Y = GDP

C = Consumption Expenditure

G = Government Expenditure

I = Investment

Therefore Y-C-G is national saving.

Hence national saving = Investment.

Case: 2 when there is taxes.

Y-C-T +T-G = I

( Just added and Subtracted 'Taxes' in above equation.)

Y-C-T = Private Saving

T -G = Public Saving.

Private Saving + Public Saving = National Saving.

Again National Saving = Investment.

Therefore in Closed Economy National saving equals Investment.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

1. The relationship National Saving = Y – C – G holds for: A closed economy...

1. The relationship National Saving = Y – C – G holds for: A closed economy only An open economy only Either an open or closed economy 2. The relationship Saving = Investment holds for: A closed economy only An open economy only Either an open or closed economy 3. True or false: a trade deficit implies a positive net capital outflow. True False

Given the following information about a closed economy, what is the level of investment spending and national saving, and what is the budget balance?

Given the following information about a closed economy, what is the level of investment spending and national saving, and what is the budget balance? There are no government transfers.GDP: $1,000 million T=$50 millionC=$850 million G=$100 million

5. Saving and net flows of capital and goods In a closed economy, saving and investment...

5. Saving and net flows of capital and goods In a closed economy, saving and investment must be equal, but this is not the case in an open economy. In the following problem, you will explore how saving and investment are connected to the international flow of capital and goods in an economy. Before delving into the relationship between these various components of an economy, you will be asked to recall some relationships between aggregate variables that will be useful...

What is saving in open economy? Discuss what are differences of saving in closed and open...

What is saving in open economy? Discuss what are differences of saving in closed and open economy?

The identity between national savings and investment holds only in a(n): open economy. closed economy. shrinking economy. growing economy.

In a closed economy with a government, if Saving is greater than Investment then, Question 41...

In a closed economy with a government, if Saving is greater than Investment then, Question 41 options: consumpton must be less than saving saving must be less than consumption the government must be running a budget surplus the government must be running a budget deficit As the public becomes nervous about the viability of many borowers, the Fed can alleviated some of the panic by: Question 43 options: selling bonds to the public buying bonds from the public cuttng the...

In the national income accounting identity showing the equality between national saving and investment, what is...

In the national income accounting identity showing the equality between national saving and investment, what is the representation of private saving and what is the representation of public saving?

In a closed economy Y = $18 trillion, national saving = $5.5 trillion, consumption is equal...

In a closed economy Y = $18 trillion, national saving = $5.5 trillion, consumption is equal to government expenditure. What is the government expenditure? Skyline Chili wants to finance the purchase of new equipment for its restaurants. The firm has limited internal funds, list two options that are available for Skyline to seek the funding. What do you mean by Kuwait government has a budget deficit for the year 2020? Using a graph explain the impact of Kuwait government introducing...

Explain what happens to saving, investment, and the real interest rate in each of the following scenarios in a closed economy.

Explain what happens to saving, investment, and the real interest rate in each of the following scenarios in a closed economy. Illustrate your answer using a saving-investment diagram. Label the axes and curves clearly. a) Real money supply increases b) The tax code changes so that business firms face higher tax rates on their revenue (offset by other lump-sum tax changes so there’s no overall change in tax revenue). The rise in taxes reduces desired investment, shifting the Id curve...

According to the Classical small open economy model, what happens to domestic national saving, investment, the...

According to the Classical small open economy model, what happens to domestic national saving, investment, the trade balance, and the real exchange rate in response to each of the following events? Draw a loanable funds market diagram and a net exports diagram to illustrate your answer in each case. (For these diagrams, let’s assume that the country starts out running a current account surplus and capital account deficit, as in the examples in class.) (a) The introduction of a stylish...

Subjects