Question

The country of Aquolina does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $3 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Aquolina is $4 billion. What is investment in Aquolina?

A) $1 billion
B) $2 billion
C) $3 billion
D) $4 billion

Answer 1

The investment in Aquolina is $10 billion.

Step-by-step explanation:

To calculate the investment in Aquolina, we need to use the equation: GDP = consumption + investment + government spending. We are given that the GDP is $20 billion, government purchases are $3 billion, and private saving is $4 billion. To calculate investment, we can rearrange the equation to solve for investment: investment = GDP - consumption - government spending - private saving. Plugging in the known values, we have: investment = $20 billion - $3 billion - $3 billion - $4 billion = $10 billion.