Consider an economy described as follows: Y = C + I + G. Y = 5,000. G = 1,000. T = 1,000. C = 250 + 0.75(Y – T). I = 1,000 – 50 r. In this economy, compute private saving, public saving, and national saving.

Private saving= 750

Public saving= 0

National saving= 750

Explanation:

From the question,

Y = C +I +G

Y = 5000

G = 1000

T = 1000

C = 250 + 0.75(Y - T)

I = 1000 - 50r

a. Private saving is the addition of the total of the savings of households and firms. It is total income minus consumption and taxes.

Private Savings = Y - T - C

= 5000 - 1000 - [250 + 0.75(5000 - 1000)]

= 5000 - 1000 - [250 + 0.75(4000)]

= 5000 - 1000 - [250 + 3000]

= 5000 - 1000 - 3250

= 750

b. Public saving is sometimes called budget surplus. It is the amount that remains after government expenditure and transfers have been deducted from the revenue government got through taxes.

Public saving = T - G

= 1000 - 1000

= 0

c. National saving is the addition of the private saving and public saving.

National saving= 750 + 0

= 750.

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