Question

Given the following information about the closed economy of Brittania, what is the level of investment spending and private savings, and what is the budget balance? Assume there are no government transfers. GDP = $ 1260.00 million T = $ 320.00 million C = $ 720.00 million G = $ 270.00 million I = $ million Private savings = $ million Budget balance = $ million

Answer 1

Answer:

$270 million; $220 million; $50 million

Explanation:

Given that,

GDP = $ 1260.00 million

T = $ 320.00 million

C = $ 720.00 million

G = $ 270.00

Formula for calculating GDP by expenditure method is as follows:

GDP = Consumption + Investment spending + Government spending

$1,260 = $720 + Investment spending + $270

$1,260 = $990 + Investment spending

$1,260 - $990 = Investment spending

$270 million = Investment spending

Private savings refers to the savings of the households. It is calculated by  subtracting the taxes and consumption spending from the income level.

Private savings:

= GDP - Taxes - Consumption spending

= $1,260 - $320 - $720

= $220 million

Public savings refers to the savings done by the government. Public savings is calculated by subtracting the government expenditure from the taxes.

Public savings = Taxes - Government spending          

                        = $320 - $270

                        = $50 million

Therefore, a positive public savings indicates that there is a budget surplus.