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26 June, 07:43

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

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  1. 26 June, 11:39
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    A. $1.5 trillion and $2.5 trillion, respectively

    Explanation:

    Given that

    GDP = 11 Trillion

    Tax = 2.5trillion

    C = 7 trillion

    Recall that

    Private Savings = Disposable Income - Consumption

    Disposable income = GDP - Tax

    = 11 - 2.5

    = 8.5

    Private savings = 8.5 - 7

    = 1.5 trillion.

    National Savings = Private Savings + Budget balance

    Given that

    Budget balance = 1 trillion

    Therefore,

    National Savings = 1.5 + 1

    = 2.5 trillion.
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