Suppose a country has total GDP (Y) = $10 trillion, consumption = $7 trillion, g

Question

Suppose a country has total GDP (Y) = $10 trillion, consumption = $7 trillion, government spending = $2 trillion, investment = $2 trillion, and taxes = $1.5 trillion.

Instructions: Round your answers to one decimal place and include a negative sign if necessary.

a. What is the level of net exports or balance of trade?

    $ trillion.

b. What is the level of public savings?
  
     $ trillion.

c. What is the level of private savings?

     $ trillion.

d. What is the level of net capital outflow?

     $ trillion.

Explanation / Answer

Ans(a): GDP= C+I+G+T+(X-M) where C= consumption, I= investment, G=govt spending, (X-M) = balance of trade or net export, T= tax

BY putting all the values we get: 10 = 7+2+2+1.5+(X-M)

= -2.5 trillion (balance of trade is negative which means Import is more than Export)

(c) Private savings = GDP-T-C ( Inveatment = savings, both private and public)

= 10-1.5-7

= 1.5 trillion

(b) Public savings = Investment - private savings

= 2- 1.5

= 0.5

(d) Here trade balance is negative which means import is more than export so here is capital inflow not outflow.

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