**Educational Resource: Calculating Private and Public Savings in a Closed Economy****Problem Statement:**In a closed economy, the values for GDP, consumption spending, investment spending, transfer payments, and taxes are as follows:* $ Y = $11 \text{ trillion} $* $ C = $8 \text{ trillion} $* $ I = $2 \text{ trillion} $* $ TR = $1 \text{ trillion} $* $ T = $2 \text{ trillion} $Using the information above, what is the value of private saving and public saving?**Options:*** A. Private saving equals $8 trillion and public saving equals $2 trillion.* B. Private saving equals $0 trillion and public saving equals $1 trillion.* C. Private saving equals $2 trillion and public saving equals $8 trillion.* D. Private saving equals $2 trillion and public saving equals $0 trillion.**Solution Explanation:**1. **Private Saving:** Private Saving can be calculated by the formula: \[ \text{Private Saving} = (Y + TR - T - C) \] Where: * $ Y $ = GDP * $ TR $ = Transfer Payments * $ T $ = Taxes * $ C $ = Consumption Plugging in the given values: \[ \text{Private Saving} = (11 + 1 - 2 - 8) = 2 \text{ trillion} \]2. **Public Saving:** Public Saving can be calculated by the formula: \[ \text{Public Saving} = (T - G) \] Since it's a closed economy, $ G $ (Government Spending) is not explicitly given but can be identified using the relationship: \[ Y = C + I + G \] Solving for $ G $: \[ 11 = 8 + 2 + G \implies G = 1 \] Now, substituting back into the formula for public saving: \[ \text{Public Saving} = (2 - 1) = 0 \text{ trillion} \]Therefore, the correct answer is:**D. Private saving equals $2 trillion and public saving equals $0 trillion

Private saving is that part of household income that is not utilized for consumption and tax…

In a closed economy, the values for GDP, consumption spending, investment spending, transfer payments, and taxes are as follows Y = C = |= TR= T= $11 trillion $8 trillion $2 trillion $1 trillion $2 trillion Using the information above, what is the value of private saving and public saving? A. Private saving equals $8 trillion and public saving equals $2 trillion. B. Private saving equals $0 trillion and public saving equals $1 trillion. OC. Private saving equals $2 trillion and public saving equals $8 trillion. O D. Private saving equals $2 trillion and public saving equals $0 trillion.

In a closed economy, the values for GDP, consumption spending, investment spending, transfer payments, and taxes are as follows Y = C = |= TR= T= $11 trillion $8 trillion $2 trillion $1 trillion $2 trillion Using the information above, what is the value of private saving and public saving? A. Private saving equals $8 trillion and public saving equals $2 trillion. B. Private saving equals $0 trillion and public saving equals $1 trillion. OC. Private saving equals $2 trillion and public saving equals $8 trillion. O D. Private saving equals $2 trillion and public saving equals $0 trillion.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 4PA

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Concept explainers

Public Saving

Public saving deals with the amount which has been in excess after meeting all the obligatory expenses and investment of the government. Taxes are collected by the government to meet its day-to-day expenditures. The obligatory expenses include all those expenses which are mandatory for the government. It cannot be avoided as it is inevitable.

Question

**Educational Resource: Calculating Private and Public Savings in a Closed Economy**

**Problem Statement:**
In a closed economy, the values for GDP, consumption spending, investment spending, transfer payments, and taxes are as follows:

* $ Y = $11 \text{ trillion} $
* $ C = $8 \text{ trillion} $
* $ I = $2 \text{ trillion} $
* $ TR = $1 \text{ trillion} $
* $ T = $2 \text{ trillion} $

Using the information above, what is the value of private saving and public saving?

**Options:**

* A. Private saving equals $8 trillion and public saving equals $2 trillion.
* B. Private saving equals $0 trillion and public saving equals $1 trillion.
* C. Private saving equals $2 trillion and public saving equals $8 trillion.
* D. Private saving equals $2 trillion and public saving equals $0 trillion.

**Solution Explanation:**

1. **Private Saving:**
Private Saving can be calculated by the formula:
\[
\text{Private Saving} = (Y + TR - T - C)
\]
Where:
* $ Y $ = GDP
* $ TR $ = Transfer Payments
* $ T $ = Taxes
* $ C $ = Consumption

Plugging in the given values:
\[
\text{Private Saving} = (11 + 1 - 2 - 8) = 2 \text{ trillion}
\]

2. **Public Saving:**
Public Saving can be calculated by the formula:
\[
\text{Public Saving} = (T - G)
\]
Since it's a closed economy, $ G $ (Government Spending) is not explicitly given but can be identified using the relationship:
\[
Y = C + I + G
\]
Solving for $ G $:
\[
11 = 8 + 2 + G \implies G = 1
\]

Now, substituting back into the formula for public saving:
\[
\text{Public Saving} = (2 - 1) = 0 \text{ trillion}
\]

Therefore, the correct answer is:
**D. Private saving equals $2 trillion and public saving equals $0 trillion

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