Question

In a small, closed economy national income (GDP) is $250.00 million for the current year. Individuals have spent $150.00 million on the consumption of goods and services. They have paid a total of $25.00 million in taxes and the government has spent $25.00 million on goods and services this year. Use this information and the national income identity to answer the following questions.1. How much does the economy spend on investment? 2. What is national saving in the economy? 3. How are investment and national saving related in an economy like this? a. national saving is always less than investmentb. investment is a componenet of national savingc. they are unrelatedd. national saving equals investment

Answer 1

Answer:

1.- Investment 75 millions

2.- Savings 75 millions

3.- national saving equals investment

Explanation:

The GDP in a closed economy equals to the consumption plus investment plus government spending

GDP = C + I + G

250 = 150 + I + 25

250 - 150 - 25 = I

Investment = 75

Then, investment is equal to private savings plus government savings

T-G = public saving (or deficit)

S = private savings

I = S + ( T - G )

75 = S + (25-25)

S= 75

As this is, a closed economy their national savings defines their investment. There is no capital inflow or outflow from aboard.