The following table contains data for a hypothetical closed economy that uses th

Question

The following table contains data for a hypothetical closed economy that uses the dollar as its currency. Suppose GDP in this country is $1,365 million. Enter the amount for consumption Value National Income Account(Millions of dollars) Government Purchases (G) Taxes minus Transfer Payments (T) Consumption (C) Investment (I) 350 280 315 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 Type here to search

Explanation / Answer

Consumption = GDP – government purchases – investment = 1365 – 350-315

Consumption = $700 Million

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National Saving = GDP – consumption – government purchase = 1365 – 700 – 350

National Saving = $315 Million

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Private savings = Y-(Tax -transfer payment) – consumption

Private savings = 1365 - 280 – 700 = $385 Million

Public savings = (tax – transfer payment) – government purchase = 280-350

Public savings = -$70 million

Correct Answer:

Budget Deficit

Since government spending is more than the taxes, as shown by the public saving being negative, then government runs a budget deficit.

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