Consider an economy with a real income of $7,000, consumption spending of $5,000, and net tax...

Consider an economy with a real income of $7,000, consumption spending of $5,000, and net tax revenue of $1,000.
a. Calculate domestic private saving
b. Suppose government spending is $1,000. Calculate public saving.
c. Continuing from part b, what is national saving?

d. Continuing from part c, suppose net foreign investment is -$2,000. What is private domestic investment spending?

Expert Solution

(a) Domestic private saving (Sp) = Income (Y) - Consumption (C) = $7,000 - $5,000 = $2,000

(b) Public saving (Sg) = Tax revenue - Government spending = $1,000 - $1,000 = 0

(c) National saving (S) = Sp + Sg = $2,000 + 0 = $2,000

(d) S = Foreign investment + Domestic investment

$2,000 = - $2,000 + Domestic investment

Domestic investment = $4,000

Rahul Sunny answered 2 years ago

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