Question

Closed economy:

Y = $12 trillion
C = $ 8 trillion
G = $ 2 trillion
Public Saving = -$0.50 trillion

1. a) Net Taxes (T)
2. b) Private Saving
3. c) Investment
4. d) Government budget surplus or deficit

Please explain.

Answer 1

a) Net Taxes (T)
Public saving =T-G=-0.5
G=2
then
T-2=-0.5
T=-0.5+2=1.5 trillion
the net taxes is $1.5 trillion

b) Private Saving

Private saving=Y-T-C
=12-1.5-8
=2.5
the private saving is $2.5 trillion

c) Investment
Investment =national saving =public saving + private saving
=2.5+(-0.5)
=2
investment =$2 trillion

d) Government budget surplus or deficit

Government is in budget deficit as the public saving is negative
Budget balance =T-G
=public saving
=-0.5 trillion
the budget deficit of $0.5 trillion