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11 December, 11:52

Suppose that GDP is $10,000, Consumption is $6,000, and Government spending is $1,500 with a deficit of $200. (Assume net exports are zero) What is the level of private saving in this economy

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  1. 11 December, 14:23
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    private saving = $2700

    Explanation:

    given data

    GDP = $10,000

    Consumption = $6,000

    Government spending = $1,500

    deficit = $200

    solution

    we know here equation of GDP that is express as

    GDP = Consumption + investment + Government spending ... 1

    we consider here tax revenue that is = T

    T - Government spending = - deficit

    T = Government spending - deficit

    T = $1500 - $200

    T = $1300

    so we can say from equation 1

    (GDP - Consumption - T) + (T - Government spending) = investment

    and investment = private saving + public saving

    so private saving will be

    private saving = GDP - Consumption - tax revenue ... 2

    private saving = $10000 - $6000 - $1300

    private saving = $2700
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