GDP equals $15 trillion, consumption equals $6 trillion, and the government spen
ID: 1130285 • Letter: G
Question
GDP equals $15 trillion, consumption equals $6 trillion, and the government spends $5 trillion and has a budget deficit of $800 billion.- Find public saving, taxes, private saving, national saving, and investment
- Use the numbers from the preceding exercise, but suppose now that the government cuts taxes by $300 billion. Consumers save 1/4 of the tax cut and spend the other 3/4. Find the same variables as part a.
GDP equals $15 trillion, consumption equals $6 trillion, and the government spends $5 trillion and has a budget deficit of $800 billion.
- Find public saving, taxes, private saving, national saving, and investment
- Use the numbers from the preceding exercise, but suppose now that the government cuts taxes by $300 billion. Consumers save 1/4 of the tax cut and spend the other 3/4. Find the same variables as part a.
GDP equals $15 trillion, consumption equals $6 trillion, and the government spends $5 trillion and has a budget deficit of $800 billion.
- Find public saving, taxes, private saving, national saving, and investment
- Use the numbers from the preceding exercise, but suppose now that the government cuts taxes by $300 billion. Consumers save 1/4 of the tax cut and spend the other 3/4. Find the same variables as part a.
Explanation / Answer
1) Given: Y = 15.0, C = 6.0, G = 5.0, G – T = 0.8
Public saving = T - G = -0.8
Taxes: T = G - 0.8 = 1.2
Private saving = Y - T - C =15.0 - 1.2 - 6.0 = 7.8
National saving = Y - C - G = 15.0 - 6.0 - 5.0 = 4.0
Investment = national saving = 4.0
2) Use the numbers from the preceding exercise, but suppose now that the government cuts taxes by $300 billion. Consumers save 1/4 of the tax cut and spend the other 3/4. Find the same variables as part a.
If consumers save $75 billion and spend $225 billion, then national saving and investment each fall by $225 billion
National saving = 4.0 - 0.225 = 3.775
Investment = national saving = 3.775
Budget deficit increases by $300 billion or 0.3 trillion
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