Question

Suppose GDP equals $10 million, consumption equals $6.5 million, the government spends $2 million and has a budget deficit of $300 million. Find public saving, taxes, private saving, national saving, and investment.

Answer 1

According to me the question is somewhere incorrect i.e. either GDP, Consumption and government spends are in billion than the budget deficit is correctly given in million (since if Government spend is 2 million than budget deficit cannot be 300 million) so based on above correction the calculation is as below:

Solution:

Given (In Billions)

Y = 10

C = 6.5

G = 2

G - T = 0.3

All answers are in billions

Public Savings = T - G =-0.3

Taxes: T = G -0.3 = 1.7

Private Saving = Y - T - C = 10 - 1.7 - 6.5 = 1.8

National saving = Y - C - G = 10 - 6.5 - 2 = 1.5

Investment = National saving = 1.5