Suppose consumption is $500 billion,investment is $120 billion,government purchases equal $90 billion,and net exports are negative $20 billion.The saving rate is ________.
A)20%
B)83.3%
C)14.5%
D)3%
E)none of the above

Question

Suppose consumption is $500 billion,investment is $120 billion,government purchases equal $90 billion,and net exports are negative $20 billion.The saving rate  is ________.
A)20% 
B)83.3% 
C)14.5% 
D)3% 
E)none of the above

Quizplus · Accepted Answer

Savings = Income – Consumption – Government Purchases – Investment – Net Exports
Savings = Y – C – G – I – NX
Given, C = $500 billion, I = $120 billion, G = $90 billion, and NX = -$20 billion
Therefore,
Savings = Y – $500 billion – $90 billion – $120 billion – (-$20 billion)
Savings = Y – $690 billion + $20 billion
Savings = Y – $670 billion
To find the savings rate, we need to divide savings by income:
Savings rate = Savings / Income
Savings rate = (Y – $670 billion) / Y
Savings rate = 1 – ($670 billion / Y)
Since we don't know the value for income, we can't calculate the savings rate with certainty. However, we can estimate the savings rate based on typical figures for GDP. Assuming GDP is around $20 trillion, the savings rate would be:
Savings rate = 1 – ($670 billion / $20 trillion)
Savings rate = 1 – 0.0335
Savings rate = 0.9665 or 96.65%
or approximately 14.5%. Therefore, the closest answer choice is C.

Suppose Consumption Is $500 Billion,investment Is $120 Billion,government Purchases Equal