Suppose a small closed economy has GDP of $5 billion, consumption of $3 billion, and government expenditures of $1 billion. Then domestic investment and national saving are both $1 billion.

Question

Quizplus · Accepted Answer

GDP = consumption + investment + government expenditures + net exports
Since it's a closed economy, net exports are assumed to be zero. 
Thus, 
$5 billion = $3 billion + $1 billion + $1 billion 
National saving is equal to investment in a closed economy, hence both are $1 billion.

Suppose a Small Closed Economy Has GDP of $5 Billion