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11 April, 05:32

The country of Hykenia does not trade with any other country. Its GDP is $20 billion. Its government collects $4 billion in taxes and pays out $3 billion to households in the form of transfer payments. Consumption equals $15 billion and investment equals $2 billion. What is public saving in Hykenia, and what is the value of the goods and services purchased by the government of Hykenia?

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  1. 11 April, 05:34
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    Answer: - $2 billion and $3 billion

    Explanation:

    Government spending

    GDP = C + I + G (X - M)

    Since it's a closed economy, there will be no export or import

    GDP = C + I + G

    Where GDP is $20 billion

    Investment (I) is $2 billion

    G is Government spending

    GDP = C + I + G

    20=15 + 2 + G

    20 = 17 + G

    Make G the subject of the formula

    G = 20 - 17

    G = $3 billion

    In a closed economy, public saving is known as budget surplus/deficit ie (T-G-TR)

    Where T is tax

    G is Government expenditures on goods and services

    TR is Transfer payments

    Public saving = T - G - TR

    Public saving=$4bn - $3bn - $3bn

    Public saving = - $2 billion.

    It's a budget deficit.
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