Answer :
Answer:
Consumption (C ) = $600 billion,
- Government spending (G ) = $130 billion,
- Investment ( I) = $70 billion.
Explanation:
In a closed economy, the fundamental national income identity is given by:
Y = C + I + G
where:
- Y is the GDP,
- C is consumption,
- I is investment,
- G is government spending.
We are given the following values:
- GDP ( Y ) = $800 billion,
- Taxes ( T ) = $150 billion,
- Private saving ( Sp ) = $50 billion,
- Public saving (Sg ) = $20 billion.
We also know that in a closed economy:
National saving (S) = Private saving+ Public saving
Therefore,
S = Sp + Sg
S = 50 + 20
S = 70
In a closed economy, national saving is also equal to investment:
S = I
I = 70
Next, we need to determine consumption (C ) and government spending ( G ).
From the information given, we can find the government budget. The government budget can be described as:
\[ \text{Public saving} = T - G \]
Given public saving (\( S_g \)) is $20 billion and taxes (\( T \)) are $150 billion:
Sg = T _ G
20 = 150 - G
G = 150 - 20
G = 130
Now we have the values for ( Y ), ( I ), and ( G ):
Y = C + I + G
800 = C + 70 + 130
800 = C + 200
C = 800 - 200
C = 600
Thus, we have:
- Consumption ( C ) = $600 billion,
- Government spending ( G ) = $130 billion,
- Investment (I ) = $70 billion.
