Scenario 13-3. Assume the following information for an imaginary, open economy.
Consumption = $1,000; investment = $300; net exports = $100;
taxes = $230; private saving = $200; and national saving = $150.
-Refer to Scenario 13-3. For this economy, government purchases amount to
A)$130.
B)$180.
C)$280.
D)$330.

Question

Quizplus · Accepted Answer

Government purchases can be calculated as follows:

National Saving = Private Saving + Public Saving
or
National Saving = Private Saving + (Taxes - Government Purchases)

Therefore, Government purchases = Taxes - National Saving

Given the values in the scenario, we can calculate:

National Saving = 150
Government Purchases = 230 - 150 = $80

However, the question asks for government purchases in absolute terms, not as a deficit. So we must add this value to net exports to arrive at a positive government purchases figure:

Government Purchases = 80 + 100 = $180

Therefore, the correct answer is C ($280).