In examining the national income accounts of the closed economy of Nepotocracy you see that in this year it had taxes of $100 billion,transfers of $40 billion,and government purchases of goods and services of $80 billion.You also notice that last year it had private saving of $50 billion and investment of $70 billion.In which year did Nepotcracy have a budget deficit of $20 billion?

Question

Quizplus · Accepted Answer

To determine whether Nepotocracy had a budget deficit of $20 billion, we need to compare its fiscal balance (government revenue minus government expenses) with its net private saving (private saving minus investment). 
This year, Nepotocracy's fiscal balance is:
$100 billion (taxes) - $40 billion (transfers) - $80 billion (government purchases) = -$20 billion (deficit)
This year, Nepotocracy's net private saving is:
$50 billion (private saving) - $70 billion (investment) = -$20 billion (deficit)
Last year, Nepotocracy's fiscal balance was not given. However, we know that its net private saving was:
$50 billion (private saving) - $70 billion (investment) = -$20 billion (deficit)
Therefore, last year, Nepotocracy did not have a budget deficit of $20 billion. Therefore, the only possible choice is B.

In Examining the National Income Accounts of the Closed Economy