Question

Suppose GDP equals $17 trillion, consumption equals $12.2 trillion, the government spends $3.5 trillion and has a budget deficit of $1.1 trillion.

Calculate public saving, taxes, private saving, national saving, and investment.

Now, assume that the government pursues its goal of updating the physical infrastructure of the economy (e.g. fixing roads, bridges, etc.). They decide to spend an additional $4 trillion on this endeavor (beyond their current spending). Use this new information to recalculate the totals from above for public saving, taxes, private saving, national saving, and investment (assuming GDP stays the same).

Answer 1

Public saving=G-T= -budget deficit=-1.1trilliion

Thus public saving=-1.1trillion

taxes=G-Budget deficit=3.5-1.1=2.4

Private saving=Y-Tax-Consp.=17-12.2-2.4=17-14.6=2.4trillion

national saving=public+private saving=Y-C-G=17-12.2-3.5=1.3trillion

Investment=Y-C-G=1.3 trillion

if G increases by 4 trillion then new G=7.5

public saving=-5.1 trillion

private saving=2.4 trillion

national saving=-5.1+2.4=-2.7 trillion