explain the how Given the following information about the closed economy of Brit
ID: 1191363 • Letter: E
Question
explain the how
Given the following information about the closed economy of Brittania, what is investment spending, private savings and government savings? Does investment equal national savings? There are no government transfers. GDP = $1,000 million T = $50 million C = $850 million G = $100 million Given the following information about the closed economy of Regalia, what is investment, disposable income, household savings, government savings & national savings? Does I = National S? GDP = $1,200 million G = $200 million C = $S00 million T =$150 million TR = $50 millionExplanation / Answer
Investment spending in a closed economy, is equal to GDP minus consumer spending minus government purchases of goods and services.
In Brittania, investment spending is $50 million:
I = GDP C G I = $1,000 million $850 million $100 million = $50 million
In Brittania, private savings is $100 million:
Private savings = GDP – Tax – Consumption Expenditure
(Private disposable income is net of taxes and consumption)
= $1,000 million $50 million $850 million = $100 million
The budget balance is equal to tax revenue minus government purchases of goods and services. In Brittania, the government is running a budget deficit of $50 million:
Budget balance = T G = $50 million $100 million = $50 million
National savings can be calculated by adding private savings and the budget balance
$100 million $50 million = $50 million.
That means that investment spending is not equal to national savings.
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