For an imaginary closed economy, T = $5,000; S = $11,000; C = $50,000; and the government is running a budget deficit of $1,000. Then
A)private saving = $10,000 and GDP = $54,000.
B)private saving = $10,000 and GDP = $58,000.
C)private saving = $12,000 and GDP = $67,000.
D)private saving = $12,000 and GDP = $72,000.

Question

Quizplus · Accepted Answer

Private saving is calculated as S = Y - T - C, where Y is GDP. Therefore, private saving = $12,000. To determine GDP, we can use the equation Y = C + I + G + NX. Since this is a closed economy and there is no information on net exports, we can assume NX = 0. Also, we know that G – T = budget deficit or $1,000. Therefore, G = T + $1,000 = $6,000. Plugging in the values, we get GDP = $67,000. Therefore, choice C is the correct answer. Neither choices A, B, nor D is correct.

For an Imaginary Closed Economy, T = $5,000; S =