Question

2. Saving and investment in the national income accounts The following table contains data for a...

2. Saving and investment in the national income accounts

The following table contains data for a hypothetical closed economy that uses the dollar as its currency.

Suppose GDP in this country is $900 million. Enter the amount for investment.

National Income Account

Value

(Millions of dollars)
Government Purchases (GG) 250
Taxes minus Transfer Payments (TT) 325
Consumption (CC) 375
Investment (II)

Complete the following table by using national income accounting identities to calculate national saving. In your calculations, use data from the preceding table.

National Saving (S)National Saving (S) =  = Y - C - GY - C - G   
=  = II   
million

Complete the following table by using national income accounting identities to calculate private and public saving. In your calculations, use data from the initial table.

Private SavingPrivate Saving =  =   
=  = million
Public SavingPublic Saving =  =   
=  = million

Based on your calculations, the government is running a budget   .

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Answer #1

GDP = Consumption + Investment + Government purchases

=> $900 million = $375 million + Investment + $250 million

=> Investment = $900 million - $375 million - $250 million

=> Investment = $275 million

----------------------

Y = C + I + G

=> I = Y - C - G

National Saving (S) = Y - C - G

= I

=$275 million

-------------------------

Private Saving = Y - C - T

= $900 million - $375 million - $325 million

= $200 million

----------------------

Public Saving = T - G

= $325 million - $250 million

= $75 million

---------------------

Based on your calculation, the government is running a budget surplus

  

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