Question

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

Answer 1

Answer:

$1,500; Deficit

Explanation:

Given that,

GDP = $11,000,

Consumption = $7,500

Taxes = $500

National saving = Public saving + private saving

$2,000 = (GDP - Consumption - Government purchases)

$2,000 = $11,000 - $7,500 - Government purchases

Government Purchases = $11,000 - $7,500 - $2,000

                                        = $1,500

Therefore, the government purchases is greater than the tax amount. Hence, the government have a deficit.