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Answer :
Final answer:
In a closed economy with a GDP of $12 trillion, consumption of $7 trillion, and net taxes of $3 trillion, the private saving is calculated to be $2 trillion. Considering the government deficit of $1 trillion, the national saving is therefore $1 trillion. The correct answer is A: Private saving = $2 trillion, National saving = $1 trillion.
Explanation:
To calculate private saving and national saving for a closed economy, we use the following identities:
- Private Saving = Income - Taxes + Transfers - Consumption
- National Saving = Private Saving + Government Saving (which is the budget surplus or deficit)
Given that GDP is $12 trillion, consumption is $7 trillion, and taxes net of transfers are $3 trillion, we can calculate private saving as:
Private Saving = $12 trillion (GDP) - $3 trillion (Taxes net of transfers) - $7 trillion (Consumption)
Private Saving = $12 trillion - $3 trillion - $7 trillion
Private Saving = $2 trillion
The government is running a deficit of $1 trillion, which means government saving is negative. To find national saving, we add private saving to the government's saving (which in the case of a deficit is subtracted):
National Saving = Private Saving - Government Deficit
National Saving = $2 trillion - $1 trillion
National Saving = $1 trillion
Therefore, the correct answer is A. Private saving = $2 trillion, National saving = $1 trillion.
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