Assume government purchases = $1,500, the budget deficit = $120, consumption = $4,800, private domestic saving = $1,220, the trade deficit = $90, and transfer payments = $0.Which of the following is true?

Question

Quizplus · Accepted Answer

National income is the sum of consumption, private domestic investment, government purchases, and net exports. In this case, net exports are equal to exports minus imports, which is not given in the question. However, we can use the trade deficit to calculate net exports. The trade deficit is equal to imports minus exports, so net exports are equal to -90. Therefore, national income is equal to 4,800 + 1,190 + 1,500 - 90 = 7,400.Disposable income is equal to national income minus taxes and transfer payments. In this case, transfer payments are equal to 0, so disposable income is equal to 7,400 - 0 = 7,400.Private domestic investment is equal to national income minus consumption, government purchases, and net exports. In this case, net exports are equal to -90, so private domestic investment is equal to 7,400 - 4,800 - 1,500 - 90 = 1,190.

Assume Government Purchases = $1,500, the Budget Deficit = $120