You have two sets of estimates of national account numbers for a closed economy for next year. In the first set, government expenditures will be $30 billion, transfer payments will be $10 billion, and taxes will be $50 billion. Under the second set, GDP will be $200 billion, taxes will be $50 billion, transfer payments will be $20 billion, consumption will be $120 billion, and investment will be $30 billion. Based on these numbers, what are the respective estimated results?
A) $20 billion surplus and a $20 billion surplus
B) $20 billion surplus and a $20 billion deficit
C) $10 billion surplus and a $20 billion surplus
D) $10 billion surplus and a $20 billion deficit

Question

Quizplus · Accepted Answer

For the first set of estimates, government expenditures ($30 billion) and transfer payments ($10 billion) are less than taxes ($50 billion), so there will be a surplus of $10 billion ($50 billion in taxes - $30 billion in government expenditures - $10 billion in transfer payments = $10 billion surplus).

For the second set of estimates, GDP ($200 billion) minus consumption ($120 billion) minus investment ($30 billion) equals $50 billion in government expenditures and transfer payments combined. Since transfer payments are $20 billion, government expenditures must be $30 billion. However, taxes are also $50 billion, so there will be a deficit of $20 billion ($50 billion in taxes - $30 billion in government expenditures - $20 billion in transfer payments = $20 billion deficit).

You Have Two Sets of Estimates of National Account Numbers