The country of Cedarland 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 Cedarland is $4 billion.What is investment in Cedarland?

Question

Quizplus · Accepted Answer

In a closed economy, GDP (Y) is the sum of consumption (C), investment (I), and government spending (G). Given Y = $20 billion, G = $3 billion, and taxes (T) = $6 billion with transfer payments (TR) = $2 billion, disposable income is Y - T + TR = $16 billion. Private saving is $4 billion, so consumption is $12 billion. Therefore, investment (I) = Y - C - G = $20 billion - $12 billion - $3 billion = $5 billion.

The Country of Cedarland Does Not Trade with Any Other