Chapter 25, Problem 1P

To determine

The level of investment spending and private savings and the budget balance according to given data.

Concept Introduction:

Closed Economy: It is a type of economy in which there is no external trade that means there is no import and export.

Investment spending: All those spending which are done on physical capital which means that only expenses that increase economy level of physical capital is known as investment spending.

The formula to calculate investment spending is:

Here,

• I is investment spending.
• GDP is gross domestic product.
• C is consumption spending.
• G is government spending.

Private Saving: It is the saving made by people for times of emergency or bad financial conditions.

The formula to calculate private saving is:

Here,

• GDP is gross domestic product.
• T is tax revenue.
• C is consumption spending.

Budget Balance: The budget is considered to be balanced when revenue collected from tax and expenditures made by government are equal. When it is deficit, it is represented by negative value, when it is surplus it is represented by positive value and in case of balanced budget it is zero.

The formula to calculate budget balance is:

Here,

• T is tax revenue.
• G is government spending.

National Savings: It is defined as the sum of private savings and government savings. The formula to calculate National Savings is: