$$\begin{array} { l }
C = 40 + 0.8 Y \
I _ { g } = 40 \
X = 20 \
M = 30
\end{array}$$ (Advanced analysis) The equations give information for a private open economy. The letters $$Y , C , I _ { g } , X$$ and M stand for GDP, consumption, gross investment, exports, and imports, respectively. Figures are in
Billions of dollars. In equilibrium, saving is
A) $20.
B) $30.
C) $40.
D) $50.

Question

$$\begin{array} { l } 
C = 40 + 0.8 Y \
I _ { g } = 40 \
X = 20 \
M = 30
\end{array}$$ (Advanced analysis) The equations give information for a private open economy. The letters $$Y , C , I _ { g } , X$$ and M stand for GDP, consumption, gross investment, exports, and imports, respectively. Figures are in
Billions of dollars. In equilibrium, saving is
A) $20.
B) $30.
C) $40.
D) $50.

Quizplus · Accepted Answer

In a private open economy, saving (S) is defined as S = Y - C - G. Using the given equations, we can rewrite this equation as S = (Y - T - C) + (T - G) - M, where T stands for taxes and (T - G) is the government's budget surplus. In equilibrium, saving equals investment, so we have S = I. Therefore, we can rewrite the equilibrium condition (Y - C - G) - I + (X - M) = 0 as (Y - T - C) + (T - G) - M - I + X = 0. Plugging in the given values, we get (100 - 70 - 20) + (30 - 20) - 10 - I + 20 = 0, which simplifies to I = $30. Therefore, in equilibrium, saving is also $30.

C=40+0.8YIg=40X=20M=30\begin{array} { l } C = 40 + 0.8 Y \\I _ { g } = 40 \\X = 20 \\M = 30\end{array}C=40+0.8YIg​=40X=20M=30​

$\begin{array} { l } C = 40 + 0.8 Y \\I _ { g } = 40 \\X = 20 \\M = 30\end{array}$