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9 February, 22:27

Suppose GDP is $8 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and public saving is $0.2 trillion. Assuming this economy is closed, calculate consumption, government purchases, national saving, and investment.

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  1. 9 February, 22:42
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    Answer: Consumption = $6 trillion

    government purchases = $1.3 trillion

    national saving = $0.7 trillion and

    investment = $0.7 trillion

    Explanation:GDP is the market value of all final goods and services within an economy during a given period.

    GDP = Consumption + Investment/National Savings + Government Expenditure/purchases (in a closed economy)

    National Savings / Investment = Private saving + public saving = $0.5 trillion + $ 0.2 trillion = $0.7 trillion.

    Government purchases = Taxes - Public saving = $1.5 trillion - $0.2 trillion = $1.3 trillion

    Since, GDP = Consumption + Investment/National Savings + Government Expenditure/purchases (in a closed economy)

    Therefore, Consumption = GDP - Investment - Government Expenditure

    Consumption = $8trillion - $0.7trillion - $1.3trillion = $6 trillion
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