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Answer :
1. The negative sign indicates that public saving is negative or in other words, there is a public dissaving of 3 trillion dollars.
2. The private saving is 4 trillion dollars.
3. Taxes are equal to zero. This is because the government is using deficit financing, meaning it is borrowing money to finance the deficit instead of raising taxes.
1. Public saving is the difference between government revenue and government spending. In this scenario, investment is 5 trillion dollars, consumption is 7 trillion dollars, government purchases are 5 trillion dollars, and there is a 2 trillion dollar deficit. Therefore, to calculate public savings, we need to subtract government purchases from revenue which is taxes. Since there is a deficit, taxes must be less than government spending.
Therefore, public saving can be calculated as follows: Public saving = T - GPublic saving = 2 trillion dollars - 5 trillion dollars public saving = -3 trillion dollars. The negative sign indicates that public saving is negative or in other words, there is a public dissaving of 3 trillion dollars.
2. Private saving is the amount of income that households save after paying taxes and consuming their goods and services. In this case, investment is 9 trillion dollars, consumption is 7 trillion dollars, government purchases are 6 trillion dollars, and there is a 2 trillion dollar surplus.
To calculate private savings, we need to add tax revenue to the difference between consumption and income which is equal to disposable income. Then we subtract consumption from disposable income to get private savings. Private saving = Y - T - CPrivate saving = (9 trillion dollars + 2 trillion dollars) - 7 trillion dollarsPrivate saving = 4 trillion dollars. Therefore, the private saving is 4 trillion dollars.
3. Taxes refer to the money that citizens and businesses are required to pay to the government. In this scenario, investment is 2 trillion dollars, consumption is 4 trillion dollars, government purchases are 5 trillion dollars, and there is a 3 trillion dollar deficit. The government uses deficit financing, meaning it borrows money to finance the deficit.
To calculate taxes, we need to add government purchases and investments and then subtract consumption and the deficit. This is because government purchases, investment, consumption, and taxes are the four components of GDP. Therefore, we can write GDP = C + I + G + (X-M)GDP = 4 trillion dollars + 2 trillion dollars + 5 trillion dollars + (-3 trillion dollars)GDP = 8 trillion dollarsTaxes = GDP - C - I - G - (X-M)Taxes = 8 trillion dollars - 4 trillion dollars - 2 trillion dollars - 5 trillion dollars - (-3 trillion dollars)Taxes = 0 trillion dollars.
Therefore, taxes are equal to zero. This is because the government is using deficit financing, meaning it is borrowing money to finance the deficit instead of raising taxes.
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Final answer:
Public saving is calculated as -2 trillion dollars, private saving as 7 trillion dollars, and taxes as 2 trillion dollars in a closed economy with given data. These calculations are based on national income accounting identities.
In order to solve these questions, let's analyze each one step-by-step:
Question 1
Given a closed economy with the following components:
- Investment = 5 trillion dollars
- Consumption = 7 trillion dollars
- Government Purchases = 5 trillion dollars
- Government Budget Deficit = 2 trillion dollars
- Public Saving is calculated as the difference between government revenue (taxes) and government spending.
Since there is a budget deficit, this means government spending exceeds its revenue. Public Saving = Taxes - Government Spending. The deficit tells us that:
- Taxes - Government Purchases = -2 trillion dollars
- Thus, Public Saving = -2 trillion dollars
Question 2
- Given in a closed economy:
- Investment = 9 trillion dollars
- Consumption = 7 trillion dollars
- Government Purchases = 6 trillion dollars
- Government Budget Surplus = 2 trillion dollars
- From national income identity: Y = C + I + G
Total Output (Y) can be derived as:
- Y = 7 + 9 + 6 = 22 trillion dollars
- To find Private Saving:
- Private Saving = Y - T - C
- T (Taxes) can be derived from the surplus equation:
- T - G = Surplus
- T - 6 = 2
- T = 8 trillion dollars
- Thus, Private Saving = 22 - 8 - 7 = 7 trillion dollars
Question 3
- Given in a closed economy:
- Investment = 2 trillion dollars
- Consumption = 4 trillion dollars
- Government Purchases = 5 trillion dollars
- Government Budget Deficit = 3 trillion dollars
Total Output (Y) can be derived as:
- Y = C + I + G
- Y = 4 + 2 + 5 = 11 trillion dollars
- Now, we know the government deficit:
- Taxes - 5 = -3
- Thus, Taxes (T) = 2 trillion dollars
