Question 1

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500, consumption equals 7,000, and government purchases equal 3,000. What are private saving and public saving?
A) 1,500 and -500, respectively
B) 1,500 and 500, respectively
C) 1,000 and -500, respectively
D) 1,000 and 500, respectively

Accepted Answer

The answer of Suppose that in a closed economy GDP...

Question 2

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of government purchases would make national savings equal to 1,000 and at that value would the government have a deficit or surplus?
A) 2,500, deficit
B) 2,500, surplus
C) 1,000, deficit
D) 1,000, surplus

Accepted Answer

National savings (S) = GDP - Consumption - Taxes 
S = 11,000 - 7,500 - 2,000
S = 1,500

To make national savings equal to 1,000, government purchases (G) need to be decreased by 500.
S = I - G (where I = Investment)
1,000 = I - (2,000 + 2,500)
1,000 = I - 4,500
I = 5,500
Hence G = I - S - T = 5,500 - 1,000 - 2,000 = 2,500

Since G > T, the government has a deficit.

Question 3

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,500, consumption equals 7,500, and government purchases equal 2,000. What is national saving?
A) -500
B) 0
C) 2,000
D) None of the above is correct.

Accepted Answer

The answer of Suppose that in a closed economy GDP...

Question 4

In a closed economy, national saving is
A) usually greater than investment.
B) equal to investment.
C) usually less than investment because of the leakage of taxes.
D) always less than investment.

Accepted Answer

In a closed economy, there are no leakages or injections, such as taxes or exports/imports. Therefore, the only sources of funds for investment are national saving (savings by households, businesses, and the government) and borrowing from abroad. In a closed economy, national saving must be equal to investment.

Question 5

Consider the expressions T - G and Y - T - C. Which of the following statements is correct?
A) Each one of these is equal to national saving.
B) Each one of these is equal to public saving.
C) The first of these is private saving; the second one is public saving.
D) The first of these is public saving; the second one is private saving.

Accepted Answer

- T - G represents government saving, which is equivalent to public saving.
- Y - T - C represents private saving, so T - G must represent public saving, and the difference between Y and private saving (T - C) must be public saving (G). Therefore, the first expression (T - G) is public saving, while the second one (Y - T - C) is private saving.

Question 6

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $2.5 trillion?
A) C = $8 trillion, G = $.5 trillion
B) C = $6.5 trillion, G = $3 trillion
C) C = $8.5 trillion, G = $2 trillion
D) C = $9 trillion, G = $.5 trillion

Accepted Answer

The answer of If in a closed economy Y =...

Question 7

In a closed economy, national saving equals
A) investment.
B) income minus the sum of consumption and government purchases.
C) private saving plus public saving.
D) All of the above are correct.

Accepted Answer

National saving is the total amount of saving by all agents in the economy. In a closed economy, all of this saving is either used for investment (by firms) or government purchases. Therefore, national saving equals investment plus government purchases. Additionally, national saving can be broken down into private saving (saving by households and firms) and public saving (the government's budget surplus or deficit). Therefore, national saving also equals private saving plus public saving. Finally, national saving can also be calculated as income minus the sum of consumption and government purchases. Therefore, all of the given options are correct.

Question 8

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?
A) $4 trillion and $1 trillion, respectively
B) $4 trillion and $-1 trillion, respectively
C) $2 trillion and $1 trillion, respectively
D) $2 trillion and $-1 trillion, respectively

Accepted Answer

The answer of For a closed economy, GDP is $11...

Question 9

Which of the following equations represents GDP for an open economy?
A) Y = C + I + G + NX
B) NX = I - G
C) I = Y - C + G + NX
D) Y = C + I + G

Accepted Answer

Option A includes net exports (NX), which is necessary to calculate GDP for an open economy. Options B and C only include specific components of GDP, while option D does not account for net exports.

Question 10

According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would
A) raise national saving and public saving.
B) raise national saving and raise public saving.
C) leave national saving and public saving unchanged.
D) leave national saving unchanged and raise public saving.

Accepted Answer

An increase in taxes would reduce disposable income and therefore lower consumption (C). As a result, private saving (Y-C) would increase, which means that national saving (Y-C-G) would also increase. Public saving is defined as taxes (T) minus government spending (G), so when taxes increase, public saving increases as well. Therefore, only D is correct.

Question 11

Suppose the economy is closed and consumption is 6,500, taxes are 1,500, and government purchases are 2,000. If national saving amounts to 1,000, then what is GDP?
A) 9,500
B) 10,000
C) 10,500
D) 11,000

Accepted Answer

The answer of Suppose the economy is closed and consumption...

Question 12

In a small closed economy investment is $50 billion and private saving is $55 billion. What are public saving and national saving?
A) $60 billion and $5 billion
B) $50 billion and -$5 billion
C) $5 billion and $60 billion
D) -$5 billion and $50 billion

Accepted Answer

The answer of In a small closed economy investment is...

Question 13

Which of the following equations represents GDP for a closed economy?
A) Y = C + I + G + T
B) S = I - G
C) I = Y - C + G
D) Y = C + I + G

Accepted Answer

In a closed economy, there is no trade with other countries, so there is no need to account for exports or imports. Therefore, the equation that represents GDP for a closed economy would simply be the sum of consumption (C), investment (I), and government spending (G), which is represented by equation D: Y = C + I + G.

Question 14

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500 consumption equals 7,500 and government purchases equal 2,000. What are private saving, public saving, and national saving?
A) 1,500, 1,000, and 500, respectively
B) 1,000, 500, and 1,500, respectively
C) 500, 1,500, and 1,000, respectively
D) None of the above is correct.

Accepted Answer

The answer of Suppose that in a closed economy GDP...

Question 15

According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would
A) raise both national saving and private saving.
B) raise national saving and reduce private saving.
C) leave national saving and private saving unchanged.
D) leave national saving unchanged and reduce private saving.

Accepted Answer

An increase in taxes would reduce disposable income, leading to a decrease in private saving (as saving is a function of disposable income). National saving, however, only includes private saving and government saving (government revenue minus government spending), and the increase in tax revenue would result in an increase in government saving. Therefore, national saving would remain unchanged while private saving would decrease.

Question 16

Suppose a closed economy had public saving of $2 trillion and private saving of $4 trillion. What are national saving and investment for this country?
A) $6 trillion, $6 trillion
B) $6 trillion, $2 trillion
C) $1 trillion, $4 trillion
D) $2 trillion, $2 trillion

Accepted Answer

The answer of Suppose a closed economy had public saving...

Question 17

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $3 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?
A) $4 trillion and $1 trillion, respectively
B) $4 trillion and $5 trillion, respectively
C) $1 trillion and $2 trillion, respectively
D) $1 trillion and $1 trillion, respectively

Accepted Answer

The answer of For a closed economy, GDP is $11...

Question 18

Suppose the economy is closed with national saving of $2 trillion, consumption of $8 trillion, and government purchases of $1 trillion. What is GDP?
A) $8 trillion
B) $9 trillion
C) $10 trillion
D) $11 trillion

Accepted Answer

The answer of Suppose the economy is closed with national...

Question 19

According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes would
A) raise both private and public saving.
B) raise private saving and lower public saving.
C) lower private saving and raise public saving.
D) lower private and public saving.

Accepted Answer

An increase in taxes would lower disposable income, which would lead to a decrease in private saving. At the same time, the government would receive more revenue, leading to an increase in public saving. Therefore, private saving would decrease while public saving would increase.

Question 20

Which of the following expressions must be equal to national saving for a closed economy?
A) Y - I - G - NX
B) Y - C - G
C) Y - I - C
D) G + C - Y

Accepted Answer

National saving in a closed economy is equal to the income (Y) minus consumption (C) minus government spending (G). Therefore, the expression Y - C - G must be equal to national saving. Option A includes net exports (NX), which is not a part of national saving for a closed economy, and option C only includes investment (I) and consumption (C), excluding government spending (G). Option D subtracts income (Y) from government spending (G) and consumption (C), which is not the correct formula for national saving.

Quiz 8: Saving, Investment, and the Financial System

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500, consumption equals 7,000, and government purchases equal 3,000. What are private saving and public saving?

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of government purchases would make national savings equal to 1,000 and at that value would the government have a deficit or surplus?

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,500, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

In a closed economy, national saving is

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If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $2.5 trillion?

In a closed economy, national saving equals

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

Which of the following equations represents GDP for an open economy?

According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would

Suppose the economy is closed and consumption is 6,500, taxes are 1,500, and government purchases are 2,000. If national saving amounts to 1,000, then what is GDP?

In a small closed economy investment is $50 billion and private saving is $55 billion. What are public saving and national saving?

Which of the following equations represents GDP for a closed economy?

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500 consumption equals 7,500 and government purchases equal 2,000. What are private saving, public saving, and national saving?

According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would

Suppose a closed economy had public saving of $2 trillion and private saving of $4 trillion. What are national saving and investment for this country?

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $3 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

Suppose the economy is closed with national saving of $2 trillion, consumption of $8 trillion, and government purchases of $1 trillion. What is GDP?

According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes would

Which of the following expressions must be equal to national saving for a closed economy?