In: Economics
Given the following information about a closed economy, what is the level of investment spending and national saving, and what is the budget balance? There are no government transfers.
GDP: $1,000 million T=$50 million
C=$850 million G=$100 million
GDP= $1000 million
T= $50 million
C= $850 million
G = $100 million
I = Investment= GDP- C-G
I = 1000-850-100
I= $50 milion
Reason - when we calculate GDP by expenditure method GDP is equal to the sum of consumption expenditure, Investment expenditure, and Government spending.
Private Savings= GDP - T- C
Private Savings= 1000 -50 -850
Private Savings= $100 million
Reason- Private savings are the savings of the household. They are calculated by subtracting Taxes and consumption expenditure from the income or GDP.
Government savings or Public savings = T - G
Government savings or Public savings = 50- 100 = -$50 million
Reason- Public Savings are the savings of the government. they are calculated by subtracting the expenditure from the taxes.
Since Government savings is positive its Budget surplus of $50 million.
National Savings= Private savings + Public Savings
National Savings= $100 million - $50 million = $50 million
Reason- National savings is the sum of savings with the government and savings with the private households.