2. Suppose GDP is S600 billion taxes are S100 billion private saving is S50 billion, public...

Question

Question

2. Suppose GDP is S600 billion taxes are S100 billion private saving is S50 billion, public saving is $20 billion, assuming t

Answer 1

Answer #1

In a closed economy,

GDP= C+I+G, from the values above $600 billion = C+I+G

National savings are denoted by the sum of private and public savings, which in a closed economy is also equal to Investments.

Thus, National Savings = $50 billion + $20 billion = $70 billion.

Therefore, I is also equal to $70 billion.

Next, Public savings are simply the savings of the government, after paying expenditure and earning taxes.

Thus Public Savings = T-G

Putting values from above, $20 billion = $100 billion - G

Thus, G= $80 billion.

Putting values of I and G in the GDP equation to find C,

$600 billion = $70 billion + $ 80 billion + C

Thus, C= $450 billion.

Answer 2

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