Thank you for visiting Suppose that there is no trade and no government in a small economy If GDP is 20 trillion and consumption spending is 16 trillion what. This page is designed to guide you through key points and clear explanations related to the topic at hand. We aim to make your learning experience smooth, insightful, and informative. Dive in and discover the answers you're looking for!
Answer :
Main Answer:
The level of private saving in the given scenario is $4 trillion (c).
Explanation:
Private saving is calculated as the difference between disposable income (which is GDP in this case, given the absence of taxes and transfers) and consumption spending. Mathematically, it can be expressed as:
[tex]\[ \text{Private Saving} = \text{Disposable Income (GDP)} - \text{Consumption Spending} \][/tex]
Given that GDP is $20 trillion and consumption spending is $16 trillion:
[tex]\[ \text{Private Saving} = $20 \, \text{trillion} - $16 \, \text{trillion} = $4 \, \text{trillion} \][/tex]
This positive value indicates that there is a surplus in private saving, meaning that households in the economy are saving $4 trillion. Option (c) is the correct answer. It's important to understand that negative private saving (as in option d) is not feasible in this context, as it would imply that households are spending more than their income, which contradicts the given information of a closed economy with no government or trade.
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