Question

In a closed​ economy, the values for​ GDP, consumption​ spending, investment​ spending, transfer​ payments, and taxes are as​ follows: Y​ = ​$12 trillion C​ = ​$9 trillion I​ = ​$3 trillion TR​ = ​$2 trillion T​ = ​$3 trillion Using the information​ above, what is the value of private saving and public​ saving? A. Private saving = ​$1 trillion and public saving = ​$2 trillion. B. Private saving = ​$3 trillion and public saving = ​$9 trillion. C. Private saving = ​$2 trillion and public saving = ​$1 trillion. D. Private saving = ​$9 trillion and public saving = ​$3 trillion.

Answer 1

Answer: Option (C) is correct.

Explanation:

National Savings is divided into two parts, private savings and public savings.

Private Savings = GDP - Taxes + Transfer payments - Consumption Spending

                         = Y - T + TR - C

                         = 12 - 3 + 2 - 9

                          = $ 2 trillion

Public Savings  = Taxes - Government Spending - Transfer payments

                           = 3 - 0 - 2

                           = $1 trillion

∴ Option (C) is correct.  

Private saving = ​$2 trillion and public saving = ​$1 trillion.