Sign Up

Sign Up to our social questions and Answers Engine to ask questions, answer people’s questions, and connect with other people.

Sign In

Login to our social questions & Answers Engine to ask questions answer people’s questions & connect with other people.

Forgot Password

Lost your password? Please enter your email address. You will receive a link and will create a new password via email.

You must login to ask a question.

Please briefly explain why you feel this question should be reported.

Please briefly explain why you feel this answer should be reported.

Please briefly explain why you feel this user should be reported.

Share & grow the world's knowledge!

We want to connect the people who have knowledge to the people who need it, to bring together people with different perspectives so they can understand each other better, and to empower everyone to share their knowledge.

The following table contains data for a hypothetical closed economy

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 $1,170 million. Enter the amount for government purchases.

National Income AccountValue
(Millions of dollars)
Government Purchases (G)…..(a)300
Taxes minus (T)390
Consumption (C)450
Investment (I)420
Explanation and Calculation 
A closed economy does not trade with the rest of the world, and, thus, its net exports are zero. Therefore, in this case, GDP is the sum of consumption, investment, and government purchases. To find the missing value of government purchases, the national income accounting identity can be rearranged as follows:
C+I+G = Y
G = Y− I − C
    = $1,170 million−$420 million−$450 million
    = $300 million.......(a)

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) = Y – C – G

= I

  =$420 million

Explanation and Calculation
National saving is the total income in the economy that is left over after paying for consumption and government purchases. In a closed economy, subtracting consumption and government purchases from GDP also yields investment spending, so national saving equals investment:
National Saving (S) = Y−C−G
                               = I
                               = $420 million..............(already given)

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 Saving = Y – C – T

=  $330 million

Public Saving = T – G

= $90 million

Explanation and Calculation 
Private saving is the income that remains after households pay taxes and make consumption expenditures:
Private Saving = Y−C−T
                       = $330 million
Public saving is the amount of tax revenue that the government has left over after paying for its spending:
Public Saving = T−G = $90 million

Based on you calculations, the government is running a budget___ surplus________

Explanation and Calculation 
When a government spends less than it collects in tax revenues, it runs a government budget surplus. Public saving is positive in the case of a budget surplus.

Note that national saving can be thought of as the sum of private and public saving. To verify the national saving figure you derived, add private and public saving:

National Saving = Private Saving+ Public Saving
                          = (Y−C−T) + (T−G)
                          = $330 million + $90 million
                          = $420 million

Related Posts

Leave a comment

Latest News & Updates

QuizlyPro Latest Articles

McMann Solutions Inc. knowingly violates the Clean Water Act by discharging hazardous pollutants into a nearby river

McMann Solutions, Inc., knowingly violates the Clean Water Act by discharging hazardous pollutants into a nearby river. McMann Solutions is subject to a. neither a fine or imprisonment. b. fines but no criminal charges or imprisonment because a corporation cannot ...

Farm and Ranch Supply Co. discovers a cache of an unknown herbicide in a back corner of its warehouse

Farm and Ranch Supply Co. discovers a cache of an unknown herbicide in a back corner of its warehouse. Farm and Ranch repackages the product, relabeling it as “Farmer’s Friend” and stating on the label and in advertisements that it ...

Tiger Stripe owns and operates gasoline filling stations. Patrick’s Trucking delivers fuel to Tiger Stripe’s storage facility on a regular basis

Tiger Stripe owns and operates gasoline filling stations. Patrick’s Trucking delivers fuel to Tiger Stripe’s storage facility on a regular basis. On one occasion, Patrick fails to pay proper attention to his truck when he is unloading fuel into Tiger ...

Explore Our Blog