If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Question

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In a closed economy, the national saving equals the sum of private saving and government saving (which is negative in the case of a deficit). Since investment must equal national saving in a closed economy, and the government deficit is $2,500, private saving must be $12,500 to make total saving ($12,500 - $2,500) equal to the investment of $10,000.

If, for an Imaginary Closed Economy, Investment Amounts to $10,000