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Public Savings in a Closed Economy

   

Added on  2019-11-19

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Running head: MACROECONOMICS Macroeconomics NameInstitution Affiliation

MACROECONOMICS 21.Consider a closed economy in which GDP equals $20 billion, consumption equals $13billion, government purchases equal $3 billon and tax revenue equals $1 billion. Use thisinformation to answer the following questions: (3 marks)a. What is private savings equal to in this economy? (0.5 mark)Public Savings = T – G$1billion - $3billion= - $2 Billionb. What is public savings equal to in this economy? (0.5 mark)Private savings = Y - T – C$20 Billion - $13 Billion - $3 Billion= $4 Billionc. How would the level of public savings impact the supply of loanable funds? (0.5 mark)Private savings is the source of loanable funds. Therefore high level of private spendingleads to increased supply of loanable fundsd. What is national saving equal to in this economy? (0.5 mark)S= Y - C – G$20 Billion - $13 Billion - $3 Billion= $4 Billione. What are net exports equal to in this economy? (0.5 mark)There are no net exports since it is a closed economy. That is the GDP is as a result ofinternal economic activity only

MACROECONOMICS 3f. What is investment equal to in this economy? (0.5 mark)Investment is equal to the National Savings = $4 billionQuestion 2 Labor productivity is very important as it measures the economic growth of within a country. It looks at the how much goods and services were produced in a country in one hour of labor meaning that it measures the GDP (real gross domestic product) that was produced in one hour of working. Labor productivity is determined by four factors; technological progress, the quality of physical labor, the quantity of capital goods that are available to workers and how efficiently resources or inputs are allocated. Human capital is important in lifting labor productivity becauseit measures the economic value of the skills an employee possesses; so the higher the human capital, the higher the labor productivity. Labor productivity in a country can be determined in the following manner; let’s say the real GDP of a country was AUD15 trillion at the end of 2016 and the aggregate hours if labor was 350 billion, the labor productivity will be determined by dividing the real GDP by the aggregate hours of labor, equating to approximately AUD42 per labor hour. Now that the labor productivity has been determined, the economic growth of a country can be established in the following way; let’s say the real GDP of the country rises to AUD20 trillion at the end of 2017 and the aggregate hours of labor increases to 400 billion, the labor productivity must again be established and then divided by that of the previous year. So it will be AUD50 divided by AUD42 equaling to about 1.2% growth (Burda and Wyplosz, 2013). Question 3 a. When Hans Rosling talks about China catching up with the US he is talking about the fact that from the time China was dominantly led and ruled by a foreign power from 1809 the

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