Chapter 31, Problem 1SCQ

In a country, private savings equals 600, the government budget surplus equals 200, and the trade surplus equals 100. What is the level of private Investment in this economy?

To determine

The level of private investment in the economy needs to be determined.

Explanation of Solution

It is given that the private savings equals 600, the government budget surplus is equal to 200 and the total surplus is equal to 100. The private investment is calculated by using the national accounting identity by the equation given below:

S + (T-G) = I + (X-M)

S is private savings,

T is taxes,

G is government spending,

M is imports,

X is exports, and

I is investments

Hence, the level of private investment in the economy is 700.

Economics Concept Introduction

Basically, budget deficit is defined as the amount in which the spending of the government is greater than revenue collected through taxes Any increase in government budget deficit will affect the economy in many ways..