Use the following information of a hypothetical economy to answer this question: National Income (Y) = 5,200; Government Budget Deficit = 150; Disposable Income (Yd) = 4,400; and Consumption (C) = 4,100. The value of Investment (I) is Group of answer choices 150 260 270 280 none of the above
Question
Use the following information of a hypothetical economy to answer this question: National Income (Y) = 5,200; Government Budget Deficit = 150; Disposable Income (Yd) = 4,400; and Consumption (C) = 4,100. The value of Investment (I) is Group of answer choices
150
260
270
280
none of the above
Solution
To find the value of Investment (I), we need to use the formula for National Income (Y), which is Y = C + I + G (where G is government spending). However, we don't have the value for G.
But we know that Disposable Income (Yd) = Y - T (where T is taxes). And we also know that Yd = C + S (where S is savings). So, we can say that Y - T = C + S.
Given that the Government Budget Deficit is 150, this means that the government is spending more than it's earning in taxes, so we can say that T = G - 150.
Substituting T in the equation Y - T = C + S, we get Y - (G - 150) = C + S, which simplifies to Y - G + 150 = C + S.
We can rearrange this to find S (savings), which is S = Y - G + 150 - C.
Substituting the given values, we get S = 5200 - G + 150 - 4100.
This simplifies to S = 1250 - G.
Now, in a closed economy, Investment (I) is equal to Savings (S), so I = S.
Therefore, I = 1250 - G.
Without the value of G (government spending), we can't find the exact value of I (Investment). So, the correct answer is "none of the above".
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