Chapter 10, Problem 1P

To determine

Concept Introduction:

Closed Economy: It is a type of economy in which there is no external trade that means there is no import and export.

Investment spending: All those spending which are done on physical capital which means that the expenses incurred increases the level of physical capital in the economy is known as investment spending.

The formula to calculate investment spending is,

Here,

• I is investment spending.
• GDP is gross domestic product.
• C is consumption spending.
• G is government spending.

Private Saving: It is the saving made by people for the time of emergency or the bad financial conditions.

The formula to calculate private saving is,

Here,

• T is tax revenue.
• GDP is gross domestic product.
• C is consumption spending.

Budget Balance: The budget is considered to be balanced when revenue collected from tax and expenditures made by government are equal. When it is a deficit it is represented by a negative value, when it is a surplus it is represented by a positive value and in case of a balanced budget, it is zero.

The formula to calculate the budget balance is,

Here,

• T is tax revenue.
• G is government spending.

National Savings: It is defined as the sum of private savings and government savings. The formula to calculate national savings is,