Question

The country of Bienmundo does not trade with any other country. Its GDP is $30 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Bienmundo amounts to $5 billion. What are consumption and investment in Bienmundo?
a. $17 billion and $8 billion, respectively.
b. $19 billion and $6 billion, respectively.
c. $19 billion and $8 billion, respectively.
d. $17 billion and $6 billion, respectively.

Answer 1

Answer:

B

Explanation:

First, we start off by calculating what the consumption is using the formula for private savings.

1. Private Savings = GDP - Tax - Consumption

• $5bn = $30bn - $6bn - Consumption
• Consumption = $30bn - $6bn - $5bn
• Consumption = $19 Billion

Then, we use the GDP formula without the export and import functions since the country of Bienmundo does not trade with any other company in order to find investment amount.

     2. GDP= Consumption + Govenrment Expenditure + Investments

• $30bn = $19bn + $5bn + Investments
• Investments = $30bn - $19bn - $5bn
• Investments = $6bn

Therefore the answer is B, where C = $19 billion and I = $6 billion