Question

Table 26-1. The following table presents information about a closed economy whose market for loanable funds is in equilibrium.


GDP $8.7 trillion
Consumer Spending $6.1 trillion
Taxes Minus Transfers $1.0 trillion
Government Purchases $0.8 trillion


Refer to Table 26-1. The quantity of private saving is
a. $0.2 trillion.
b. $1.8 trillion.
c. $2.6 trillion.
d. $1.6 trillion.

Answer 1

To find the quantity of private saving in a closed economy, we can use the following formula:

\[ \text{Private Saving} = Y - T - C \]

where:
- \( Y \) is the GDP,
- \( T \) is taxes (net of transfers),
- \( C \) is consumer spending.

From the information given in Table 26-1:
- GDP (\( Y \)) = $8.7 trillion
- Taxes Minus Transfers (\( T \)) = $1.0 trillion
- Consumer Spending (\( C \)) = $6.1 trillion

Now we can calculate private saving:

\[ \text{Private Saving} = 8.7 - 1.0 - 6.1 \]
\[ \text{Private Saving} = 8.7 - 7.1 \]
\[ \text{Private Saving} = 1.6 \text{ trillion} \]

Thus, the quantity of private saving is:

**d. $1.6 trillion.**