The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $6 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 billion. What is investment in Growpaw?

Question

Quizplus · Accepted Answer

In a closed economy, GDP = C + I + G. Rearranging gives I = GDP - C - G. National saving = Private saving + Public saving. Public saving = Taxes - Government spending - Transfer payments = $6B - $3B - $2B = $1B. National saving = $4B + $1B = $5B, which equals investment.

The Country of Growpaw Does Not Trade with Any Other