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6 June, 06:57

In a small, closed economy national income (GDP) is $750.00 million for the current month. Individuals have spent $300.00 million on the consumption of goods and services. They have paid a total of $250.00 million in taxes and the government has spent $400.00 million on goods and services this month. Use this information and the national income identity to answer the following questions. How much does the economy spend on investment? What is national saving in the economy? How are investment and national saving related in an economy like this?

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  1. 6 June, 07:16
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    Investment is $50 million as shown below.

    The national savings is - $150m as government spent more than it received in taxes.

    The national savings and the investment moving in different directions shows that the economy is running a deficit budget

    Explanation:

    The formula for computing GDP is given as:

    GDP = C + I + G + (Ex - Im)

    Where C=Consumption

    I=investment

    G=Government expenditure

    Ex=Export

    Im=Import

    In this case, neither export nor import is applicable

    The formula becomes:

    GDP=G+I+C

    Rewritten I=GDP-C-G

    I=750-300-400

    I=$50m

    National savings is the difference between what government in taxes and government exenditure.

    National savings = T-G

    National savings=250-400

    National savings=-150m
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