Question

In a country, private savings equals \(600,\) the government budget surplus equals \(200,\) and the trade surplus equals100. What is the level of private investment in this economy?

Short answer

The level of private investment in this economy is $900.

Step-by-step solution

Recall the equation for National Savings

National Savings is the sum of private savings (S), government budget surplus (T-G), and trade surplus (X-M). The equation can be expressed as: National Savings (NS) = S + (T-G) + (X-M) Where: NS = National Savings S = Private Savings T = Tax Revenue G = Government Spending X = Exports M = Imports In this exercise, we are given S, T-G, and X-M directly.

Substitute given values into the equation

We know that private savings (S) = \(600, government budget surplus (T-G) = \)200, and trade surplus (X-M) = $100. Substitute these values into the equation: NS = 600 + 200 + 100

Calculate National Savings

Now, we can calculate the National Savings: NS = 600 + 200 + 100 NS = 900 So, the National Savings (NS) equals $900.

Recall the equation for Private Investment and National Savings

Private Investment (I) is equal to the National Savings (NS) because the money saved in an economy is equal to the investment. Therefore, the equation is: I = NS

Calculate Private Investment

Since we have found the National Savings (NS) to be $900, we can now calculate Private Investment (I): I = NS I = 900 The level of private investment in this economy is $900.