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...
Included among the Fed's primary goals to promote a well-functioning economy are
A) high employment, low inflation, and a high foreign-exchange value of the dollar. B) price stability, economic growth, and a high reserve ratio. C) low government budget deficits, interest rate stability, and no inflation. D) a low rate of unemployment, a low and stable inflation rate, and financial market stability.
The usefulness of a model is determined by
A) whether it helps to explain or predict real world phenomena. B) whether it possesses realistic assumptions. C) how well it uses the ceteris paribus assumption. D) how many of the possible relationships that exist are included in the model.