Suppose an economy has a government budget surplus of $100, net exports of -$400, and a planned investment level of $1, 000.For this economy to be in equilibrium, saving must equal:

Question

Quizplus · Accepted Answer

In equilibrium, the following identity holds:
Y = C + I + G + NX
where Y is output, C is consumption, I is investment, G is government spending, and NX is net exports.
We can rewrite this identity as:
Y - C = I + G + NX
The difference between Y and C (or consumption) is saving (S):
S = Y - C
So, in equilibrium, saving must equal:
S = I + G + NX
In this problem, we are given G = 100, NX = -400, and I = 1000. Substituting these values, we get:
S = 1000 + 100 - 400
S = 700
Therefore, the answer is B, $500.

Suppose an Economy Has a Government Budget Surplus of $100