If the saving rate in an economy is 30 percent and the level of investment in the economy is $400, the GDP of the economy must be ________.

Question

Quizplus · Accepted Answer

The saving rate is the portion of income that is not spent on consumption. If the saving rate is 30%, this means that 30% of GDP is saved. Since savings and investment are equal in a closed economy without government (ignoring external trade and government budgets), the level of investment ($400) represents 30% of GDP. To find the GDP, divide the investment by the saving rate: $400 / 0.3 = $1,333.33.

If the Saving Rate in an Economy Is 30 Percent