Question

Suppose GDP is Rs.10.3 trillion, taxes are Rs.1.8 trillion, private saving is Rs.1.2 trillion, and public saving is Rs.0.2 trillion. Assuming this economy is closed, calculate

Answer 1

Private savings= GDP-taxes-consumption

1.2= 10.3$-$ 1.8-consumption

Consumption= 10.3$-$ 1.8$-$ 1.2 = 7.3

National savings = public + private savings

= 1.2+0.2 = 1.4

NOW,

National savings = GDP$-$ Consumption- govt purchases

1.4 = 10.3 $-$ 7.3 =govt purchases

Govt purchases = 10.3$-$ 7.3$-$ 1.4 = 1.6

Now we know

GDP = C + I + G

10.3 = 7.3 + I + 1.6

I = 10.3-7.3$-$ 1.6 = 1.4