Question

Suppose GDP is $12 trillion, taxes are $3.6 trillion, private saving is $1.5 trillion, and public saving is $0.8 trillion. Assuming the economy is closed, complete the following table by calculating consumption, government purchases, national saving, and investment. Component Amount (Trillions of dollars) Consumption Government Purchases National Saving Investment

Answer 1

Assuming this economy is closed: Consumption $6.9 trillion; Government Purchases $11.2 trillion; National Saving $2.3 trillion; Investment $2.3 trillion.

Gross domestic product

a. Consumption

Private S = ( Y – T – C )

C = Y - T - Private S

C = $12 - $3.6 - $1.5 =$6.9 trillion

b. Government purchases

Public S = ( T - G )          

G = T - Public S                                                        

G = $12 - $0.8

G = $11.2 trillion

c and d. National saving and investment

National savings = Public S + Private S

National savings = $0.8 + $1.5

National savings =$2.3 trillion

Investment=Savings=$2.3 trillion

Therefore, Consumption $6.9 trillion; Government Purchases $11.2 trillion; National Saving $2.3 trillion; Investment $2.3 trillion.

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