The national saving and investment identity for the economy is S=5000+(X-M)-1000.
Given that there is a budget surplus of 1000,private savings of 4000 and investment of 5000.
We are required to find out national saving and investment identity for this economy.
Because the government has a budget surplus,the government budget term appears with the supply of capital.The following shows the national savings and investment identity for this economy:
Suppy of financial capital=Demand of financial capital.
S+(T-G)=I+(X-M)-------------1
In which, S= Private saving, (T-G)=Government surplus, I=Private Investment,(X-M)= outflow of foreign saving.
Use the given values in 1 to get the national saving.
S=I+(X-M)-(T-G)
S=5000+(X-M)-1000
[(X-M) is the outflow of foreign savings mean the investment of government]
Hence the national saving and investment identity for the economy is S=5000+(X-M)-1000.
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