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Answer :
In a closed economy where saving equals investment, the total saving in the economy is $2 trillion. However, the private saving, which is the difference between after-tax income and consumption, is $3.5 trillion (option c).
In a closed economy, the GDP is the sum of consumption, investment, and government spending. The GDP is given as $12 trillion, from which consumption is $8 trillion and government spending is $2 trillion. Hence, the investment can be calculated as:
GDP - Consumption - Government Spending = Investment
So, $12 trillion - $8 trillion - $2 trillion = $2 trillion. This is the total investment in the economy. Now, given that in a closed economy, saving is equal to investment (S = I), thus the total saving in the economy is also $2 trillion.
Next, private saving is calculated as the difference between what households earn (after taxes) and what they consume. With the given values, we can calculate it as follows:
GDP - Taxes - Consumption = Private Saving
So, $12 trillion - $0.5 trillion - $8 trillion = $3.5 trillion.
So, the answer to the question is C. $3.5 trillion.
Learn more about Private Saving in a Closed Economy here:
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