Scenario 18-3.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 18-3.For this economy,government purchases amount to

Question

Quizplus · Accepted Answer

National saving (S) = Private saving (S_p) + Public Saving (S_g)
S = $150 = $200 + S_g
S_g = -$50 (Negative indicating public dissaving)
Using the equation for the National Income/Expenditure Identity:
Y = C + I + G + NX
Y = $1,000 + $300 + G - $100
Y = $1,200 + G
Substitute S_g with the tax revenue net of transfers:
S_g = T - G
-$50 = $230 - G
G = $280
Therefore, the government purchases amount to $280.