Consider the following data for a closed economy:
a. Y = $12 trillion
b. C = $8 trillion
c. I = $3 trillion
d. TR = $2 trillion
e. T = $3 trillion
Use the data provided to calculate the level of private saving and the level of public saving and demonstrate their relationship to investment.
Private saving is equal to Y + TR - C - T, and public saving is equal to T - G - TR. Plugging in the appropriate numbers for private saving, private saving = Y + TR - C - T = $12t + $2t - $8t - $3t = $3 trillion. Using the identity for output in a closed economy, G = Y - C - I = $12t - $8t - $3t = $1t, so public saving = $3t - $1t - $2t = $0. Adding together private saving of $3 trillion and public saving of $0 yields saving of $3 trillion, which is exactly equal to investment of $3 trillion.
You might also like to view...
In the long run, a firm should exit when:
A) price is less than average total cost. B) price is equal to average total cost. C) price is equal to marginal cost. D) price is more than marginal cost.
In the United States -since 1981- which two of the following have almost always moved in the same direction?
A) net exports and the government sector balance B) net exports and the private sector balance C) the government sector balance and the private sector balance D) none of the above
In the steady state of Solow's exogenous growth model, an increase in total factor productivity
A) increases output per worker and increases capital per worker. B) increases output per worker and decreases capital per worker. C) decreases output per worker and increases capital per worker. D) decreases output per worker and decreases capital per worker.
According to the quantity theory of money, increases in the money supply lead to
A) decreases in nominal Gross Domestic Product (GDP). B) increases in the price level. C) decreases in the price level. D) increases in taxes.