National savings/Private savings

Question

The following table contains data for a hypothetical closed economy that uses the dollar as its currency.

 Suppose GDP in this country is $195 million. Enter the amount for investment.

National Income Account	Value (millions of dollars)
Government Purchases (G�)	50
Taxes minus Transfer Payments (T�)	40
Consumption (C�)	100
Investment (I�)	???

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) = ???
= ???
_____???___ million dollars

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 = ???
= __???__ Million dollars
Public Saving = ???
=  __???___ million dollars

Based on your calculations, the government is running a budget _____ .

Answer 1

First, to get the investment, we take the total GDP and equal it to its parts.

Y = C + I + G (No NX because it is a closed economy)

then we substitute

(195) = (100) + I + (50)

195 - 100 - 50 = I

I = 45 Million

Next, we have to remember the identities:

I = Public Saving + Private Saving,

Public Saving = Government Revenue - Government Spending.

Starting with Public Saving we take Government Revenue (Taxes and subtract Spending)

Substitute:

Public Saving = (40) - (50)

Public Saving = -10

To Find Private Savings we substitute investment and Public Savings into the Identity: I = Public savings + Private savings.

(45) = (-10) + (Private Saving)

45 + 10 = Private Saving

Private Saving = 55

For the last question, since Public Savings is negative, it means the government is losing money. Meaning they are running a Budget Deficit since spending is greater than revenue.