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For a closed economy, GDP is $15 trillion, consumption is $7 trillion, taxes are $2 trillion, and the government runs a deficit of $3 trillion. What are private saving and national total saving?

Options:
A. $5 trillion and $3 trillion, respectively
B. $4 trillion and $2 trillion, respectively
C. $4 trillion and minus (-) $2 trillion, respectively
D. $6 trillion and $3 trillion, respectively

Answer :

In a closed economy, GDP represents the total value of all goods and services produced within that economy.

In this scenario, the GDP is $15 trillion. Consumption refers to the total spending by households on goods and services, which in this case is $7 trillion. Taxes represent the amount of money collected by the government from households and businesses, which in this case is $2 trillion. The government runs a deficit of $3 trillion, meaning its expenditures exceed its revenues. Private saving refers to the portion of household income that is not spent on consumption and is instead saved. Private saving can be calculated as the difference between disposable income (income after taxes) and consumption. In this case, private saving would be $6 trillion ($15 trillion GDP - $2 trillion taxes - $7 trillion consumption). National total saving, also known as net saving, is the total amount saved by both households and the government. It can be calculated as the difference between national income (GDP) and national spending (consumption and government expenditures). In this case, national total saving would be $3 trillion ($15 trillion GDP - $7 trillion consumption - $3 trillion deficit). Therefore, the answer to the question is option D: $6 trillion for private saving and $3 trillion for national total saving.

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