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19 December, 07:29

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland,

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  1. 19 December, 10:54
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    Consumption expenditure in Cedarland is $6 billion.

    Investment in Cedarland is $6 billion.

    Explanation:

    The GDP is $17 billion.

    The government purchases are equal to $5 billion.

    The tax revenue to the government is $6 billion.

    Private saving is equal to $5 billion.

    The government saving is equal to

    = Tax revenue - Government spending

    = $6 billion - $5 billion

    = $1 billion

    The national saving is equal to

    = Private saving + Government saving

    = $5 billion + $1 billion

    = $6 billion

    In a closed economy, investment expenditure is equal to national savings.

    So investment in Cedarland is $6 billion.

    In a closed economy the GDP is C + I + G

    $17 billion = C + I + G

    $17 billion = C + $6 billion + $5 billion

    C = $17 billion - $11 billion

    C = $6 billion

    Consumption expenditure in Cedarland is $6 billion.
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