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Question
Statistics
Posted 4 months ago

Elements of national income accounting can be abbreviated as shown in the table below.
\begin{tabular}{llllllll} 
Abbreviation & Y & C & T & G & I & NX & NCI \\
\hline Meaning & \begin{tabular}{l} 
national \\
income
\end{tabular} & consumption & taxes & government & investment & net & net \\
& & & & spending & & exports & capital \\
& & & & & & & inflows
\end{tabular}

Which of the following equations represents the relationship between savings and investment in a closed economy?

Choose 1 answer:
(A) (Y−C−T)+(T−G)+NCI=I(Y-C-T)+(T-G)+N C I=I
(B) NCI=IN C I=I
(C) (Y−C−T)+(T−G)=I(Y-C-T)+(T-G)=I
(D) T−G=IT-G=I
() Y−C−T=IY-C-T=I
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Answer from Sia
Posted 4 months ago
Solution by Steps
step 1
In a closed economy, net exports (NX) and net capital inflows (NCI) are zero. Therefore, the equation simplifies to: Y=C+I+GY = C + I + G
step 2
Rearrange the equation to solve for investment (I): I=Y−C−GI = Y - C - G
step 3
National savings (S) in a closed economy is defined as the sum of private savings (Y−C−T)(Y - C - T) and public savings (T−G)(T - G). Therefore, S=(Y−C−T)+(T−G)S = (Y - C - T) + (T - G)
step 4
Substitute the expression for national savings (S) into the investment equation: S=IS = I
step 5
The correct equation representing the relationship between savings and investment in a closed economy is: (Y−C−T)+(T−G)=I(Y - C - T) + (T - G) = I
C
Key Concept
Savings and Investment Relationship in a Closed Economy
Explanation
In a closed economy, the sum of private and public savings equals investment. This is represented by the equation (Y−C−T)+(T−G)=I(Y - C - T) + (T - G) = I.

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