Question

2. 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 $1,175 million. Enter the amount for government purchases.

National Income Account	Value
	(Millions of dollars)
Government Purchases (GG)
Taxes minus Transfer Payments (TT)	225
Consumption (CC)	625
Investment (II)	300

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

GDP= C+I+G

1175 = 625 + 300 + G

G = $250 million

National savings ,S= I= Y-C-G = $300 million

Private savings = Y-TT- C = 1175 - 225 - 625

Private savings = $325 million

Public savings = T-G

= 225 - 250

Public savings = -$25 million

Because Public savings are negative , this implies that the government is running a budget deficit.