Use the following to answer questions :
Scenario: A Small Economy
Suppose there is no trade and no government in a small economy. GDP is $25 trillion, and consumption spending is $18 trillion this year.
-(Scenario: A Small Economy) Look at the scenario A Small Economy. There is a new government and it imposes taxes on its citizens to spend on infrastructure. Taxes and government spending are both $2 trillion. What is the level of investment spending now?

Question

Quizplus · Accepted Answer

Investment spending can be calculated using the following formula: 
Investment spending = GDP - Consumption spending - Government spending

Before the government was introduced, investment spending was: 
Investment spending = $25 trillion - $18 trillion - $0 = $7 trillion

After the government was introduced, investment spending becomes: 
Investment spending = $25 trillion - $18 trillion - $2 trillion = $5 trillion

Therefore, the answer is B) $5 trillion.

Use the Following to Answer Questions