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 $800 million. Enter the amount for government purchases. National Income Account Value (Millions of dollars) Government Purchases (G) 200 Taxes minus Transfer Payments (T) 260 Consumption (C) 300 Investment (I) 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) = Y - C - G = $ 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 Saving = = $ million Public Saving = = $ million Based on your calculations, the government is running a budget .

Answer 1

Ans:

	Value
National Income Account	( Millions of dollars)
Government Purchases ( G )	200
Taxes minus Transfer Payments ( T )	260
Consumption ( C )	300
Investment ( I )	300

Ans:

National savings ( S ) = T - G + Y - T - C =  $300 million

Private savings = Y - T - C = $240 million

Public savings = T - G = $60 million

Based on your calculation , the government is running a budget surplus.

Explanation:

Explanation:

GDP = C + I + G + X - M

$800 = $300 + 300 + G + 0

G = $800 - $600 = $200 million

Public savings = T - G = $260 - $200 = $60 million

Private savings = Y - T - C = $800 - $260 - $300 = $240 million

National savings ( S ) = Public savings + Private savings

= (T - G) + (Y - T - C )

= $60 million + $240 million = $300 million

When tax ( T ) is greater than government spending ( G ) then there will be surplus budget . But when tax ( T ) is less than government spending ( G ) then there will be deficit budget. Public savings is positive in the case of surplus budget.