Question

Consider the following data for a closed economy: Y = $15 trillion C = $7 trillion 1= $2 trillion TR = $1 trillion T= $2 trillion Use the data to calculate the following. (Enter your responses as integers.) a. Private saving: $7 trillion. b. Public saving: $ trillion. c. Government purchases: $ trillion. d. The government budget balance is $ trillion and as a result the governmerit budget is in surplus

Answer 1

a. Private Saving: $6 trillion

b. Public Saving:
`\(S_g = 2 - 1 - G = 1 - G\)`

c. Government Purchases:
`\(G = 2 - 1 - S_g = 1 - S_g\)`

d. The government budget balance is 2 - G trillion, and as a result, the government budget is in surplus or deficit depending on the value of G.

Given:

- Y (GDP) = $15 trillion

- C (Consumption) = $7 trillion

- I (Investment) = $2 trillion

- TR (Transfer Payments) = $1 trillion

- T (Taxes) = $2 trillion

Calculations:

a. Private Saving:

Private Saving
`(\(S_p\))` is given by the formula:

`\[S_p = Y - C - T\]`

`\[S_p = 15 - 7 - 2\]`

`\[S_p = 15 - 9\]`

`\[S_p = 6\]`

b. Public Saving:

Public Saving
`(\(S_g\))` is given by the formula:

`\[S_g = T - TR - G\]`

`\[S_g = 2 - 1 - G\]`

c. Government Purchases:

Government Purchases (G) can be calculated using the equation for the government budget balance:

`\[G = T - TR - S_g\]`

`\[G = 2 - 1 - S_g\]`

d. Government Budget Balance and Status:

The government budget balance is the difference between government spending (G) and government revenue (T):

`\[Budget \ Balance = T - G\]`

`\[Budget \ Balance = 2 - G\]`

Answer 2

a. Private savings = $7 trillion.

b. Public savings = $0

c. Government purchases = $1

d. Budget balance = $0

a) Private savings = Y - C - T + TR

= 15 - 7 - 2 + 1

= 7

Private savings = $7 trillion.

b. Y = C + I + G

15 = 7 + 7 + G

G = 15 - 14

G = 1

Government purchases = $1

Public savings = T - G - TR

= 2 - 1 - 1

= 0

Public savings = $0

d) Budget balance = T - G - TR = 2 - 1 - 1 = $0

So, because the budget balance is zero, this means that the government budget is balanced.