In: Economics
Consider an economy with a real income of $10,000, consumption
spending of $7,000, and net tax revenue of $2,000.
a. Calculate domestic private saving and Suppose government
spending is $2,000. What is the public saving?
b. Continuing from part last part, what is national saving?
c Continuing from part b, suppose net foreign investment is -$3,000. What is private domestic investment spending?
(a) Domestic Private Saving = Income - Consumption - Tax Revenue
= 10,000 - 7000 - 2000 = $1000
=> Domestic Private Saving = $1000
Public Saving = Tax Revenue - Government Spending
= 2000 - 2000 = $0
=> Public Saving = $0
(b) National Saving = Public Saving + Private Saving = 0 + 1000 = $1000
=> National Saving = $1000
(c) Mathematically At equilibrium Y = C + I + G + NX
=> I = Y - C - G - NX -------------------(1)
where C = consumption. I = Investment , G = Government Expenditure and NX = Net Exports
S(National Saving) = Private Saving + Public Saving = (Y - C - T) + T - G = Y - C - G ------------------(2)
From (1) and (2) We have
I(Domestic investment) = National Saving - NX
and NX = Net Foreign Investment
=> Domestic investment = National Saving - Net Foreign Investment
= 1000 - (-3000) = $4000
=> Domestic investment = $4000