Question

The table below shows aggregate values for a hypothetical economy. Suppose that this economy has real GDP equal to potential output.

Potential GDP	$2500
Net Tax Revenues	$50
Government Purchases	$200
Investment	$100
Consumption	$2350
Net Exports	-$135

TABLE 26-1


Refer to Table 26-1. What is the level of private saving for this economy?

Question 2 options:

	A) $50
	B) $300
	C) $150
	D) $100
	E) $200

Answer 1

Ans. 2. D) $100

Private saving = ( Potential GDP - Net tax revenues ) - Consumption

Private saving = ( $2,500 - $50 ) - $2,350

Priavate saving = $2,450 - $2,350

Priavate saving = $100

Hence, the level of private saving is $100.

Note:

1) Real GDP = Potential GDP = $2,500 ( given)

2) Disposable Income = Potential GDP - Net tax Revenues