Consider a closed economy. Household saving is $300, business saving is $700, government purchases are $1000, government transfers and interest payments are $500, government tax collections are $1300, and GDP is $5000. What is national saving?
Question
Consider a closed economy. Household saving is 700, government purchases are 500, government tax collections are 5000. What is national saving?
Solution
In a closed economy, national saving is the sum of private saving (which includes household saving and business saving) and public saving (which is the difference between government tax collections and the sum of government purchases and government transfers and interest payments).
Step 1: Calculate private saving Private saving = Household saving + Business saving Private saving = 700 Private saving = $1000
Step 2: Calculate public saving Public saving = Government tax collections - (Government purchases + Government transfers and interest payments) Public saving = 1000 + 1300 - 200
Step 3: Calculate national saving National saving = Private saving + Public saving National saving = 200 National saving = $800
Therefore, the national saving in this closed economy is $800.
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