Question

Suppose GDP is $9 trillion, taxes are $1.9 trillion, private saving is $0.6 trillion, and public saving is $0.3 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

Private saving is the amount of income (Y$\mathit{Y}$) that households have left after paying their taxes (T$\mathit{T}$) and paying for their consumption (C$\mathit{C}$). In order to solve for consumption, you can rearrange the formula for private saving:

SPrivate${\mathit{S}}_{\mathrm{Private}}$	= $\mathit{ }=\mathit{ }$	Y−T−C$\mathit{Y}-\mathit{T}-\mathit{C}$
C$\mathit{C}$	= $\mathit{ }=\mathit{ }$	Y−T−SPrivate$\mathit{Y}-\mathit{T}-{\mathit{S}}_{\mathrm{Private}}$
	= $\mathit{ }=\mathit{ }$	$9 trillion−$1.9 trillion−$0.6 trillion$\mathrm{\$}9\mathrm{ trillion}-\mathrm{\$}1.9\mathrm{ trillion}-\mathrm{\$}0.6\mathrm{ trillion}$
	= $\mathit{ }=\mathit{ }$	$6.5 trillion$\mathrm{\$}6.5\mathrm{ trillion}$

Public saving is the amount of tax revenue that the government has left after paying for its spending. In order to solve for government purchases (G$\mathit{G}$), you can rearrange the formula for public saving:

SPublic${\mathit{S}}_{\mathrm{Public}}$	= $\mathit{ }=\mathit{ }$	T−G$\mathit{T}-\mathit{G}$
G$\mathit{G}$	= $\mathit{ }=\mathit{ }$	T−SPublic$\mathit{T}-{\mathit{S}}_{\mathrm{Public}}$
	= $\mathit{ }=\mathit{ }$	$1.9 trillion−$0.3 trillion$\mathrm{\$}1.9\mathrm{ trillion}-\mathrm{\$}0.3\mathrm{ trillion}$
	= $\mathit{ }=\mathit{ }$	$1.6 trillion$\mathrm{\$}1.6\mathrm{ trillion}$

National saving is the sum of private and public saving:

National Saving$\mathit{National Saving}$	= $\mathit{ }=\mathit{ }$	SPrivate+SPublic${\mathit{S}}_{\mathrm{Private}}+{\mathit{S}}_{\mathrm{Public}}$
	= $\mathit{ }=\mathit{ }$	$0.6 trillion+$0.3 trillion$\mathrm{\$}0.6\mathrm{ trillion}+\mathrm{\$}0.3\mathrm{ trillion}$
	= $\mathit{ }=\mathit{ }$	$0.9 trillion$\mathrm{\$}0.9\mathrm{ trillion}$

Because investment (I$\mathit{I}$) equals national saving in a closed economy, investment is also $0.9 trillion. See Section: Some Important Identities.