Questions and Answers
What is the formula for national savings?
S = Y - C - G
How is the formula for national savings derived?
It is derived from the GDP formula: Y = C + I + G + NX. Assuming a closed economy (NX = 0) and solving for I, we get I = Y - C - G, and since investment spending (I) equals national savings (S), we have S = Y - C - G.
Under the saving-investment spending identity, if you let T denote government tax revenue minus transfer payments, what is the new formula for national savings?
S = (Y - T - C) + (T - G)
Under the saving-investment spending identity, if T > G, there is a budget surplus.
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Study Notes
National Savings Formula
- National savings (S) formula: S = Y - C - G
- Variables defined:
- S = national savings
- Y = national income (GDP)
- C = consumption spending
- G = government spending
Derivation of National Savings Formula
- Formula derived from GDP: Y = C + I + G + NX
- In a closed economy (where NX = 0), rearranging gives I = Y - C - G
- Investment spending (I) equals national savings (S): hence, S = Y - C - G
Modified National Savings Formula
- New formula incorporating government revenue (T): S = (Y - T - C) + (T - G)
- Here, (Y - T - C) represents private saving, and (T - G) represents public saving (government budget balance)
Budget Surplus Condition
- If T > G, the outcome is a budget surplus, indicating that government revenues exceed government spending
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Description
This quiz covers key concepts from Chapter 10 of ECO 202, focusing on the loanable funds market. It includes the formula for national savings and its derivation from GDP. Ideal for students looking to reinforce their understanding of these economic principles.
