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.
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