Question

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 $1,330 million. Enter the amount for government purchases.

National Income Account	Value
	(Millions of dollars)
Government Purchases (GG)
Taxes minus Transfer Payments (TT)	455
Consumption (CC)	700
Investment (II)	280

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)	=  =
	=  =
		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   .

Answer 1

Solution:-

GDP – Closed economy:-

Y = C + I + G

1330 = 700 + 280 + G

1330 – 980 = G

Government purchases (G) = $350 million

National Saving:-

National savings = GDP – Consumption – Government purchases

                             = 1330 – 700 – 350

                             = $280 million

Private Savings:-

Private savings = GDP – Consumption – Taxes minus Transfer Payments

                              = 1330 – 700 – 455

                              = $175 million

Public Saving:-

Public savings = Taxes minus Transfer Payments – Government purchases

                            = 455 – 350

                            = $105 million

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