Scenario 13-1. Assume the following information for an imaginary, closed economy. $$\begin{array} { l }
\text { GDP } = \$ 120,000 ; \text { consumption } = \$ 70,000 ; \text { private savng } = \$ 9,000 \text {; } \
\text { national saving } = \$ 12,000
\end{array}$$
-Refer to Scenario 13-1. For this economy, taxes amount to
A)$28,000.
B)$38,000.
C)$41,000.
D)$44,000.

Question

Scenario 13-1. Assume the following information for an imaginary, closed economy. $$\begin{array} { l } 
\text { GDP } = \$ 120,000 ; \text { consumption } = \$ 70,000 ; \text { private savng } = \$ 9,000 \text {; } \
\text { national saving } = \$ 12,000
\end{array}$$
-Refer to Scenario 13-1. For this economy, taxes amount to
A)$28,000.
B)$38,000.
C)$41,000.
D)$44,000.

Quizplus · Accepted Answer

Using the formula for national saving:

National Saving = Investment + Government Saving

We can rearrange this formula as follows:

Government Saving = National Saving - Investment

Since the problem doesn't give us the value of investment, we can use the fact that in a closed economy, investment equals national saving:

Government Saving = National Saving - National Saving

Government Saving = 0

So we know that government saving is zero. We also know that private saving equals national saving minus government saving:

Private Saving = National Saving - Government Saving

Private Saving = $12,000 - $0

Private Saving = $12,000

Finally, we can use the fact that:

GDP = Consumption + Investment + Government Spending

Since we now know that government saving is zero, we can rearrange the formula as follows:

GDP = Consumption + Private Saving + Taxes

$120,000 = $70,000 + $12,000 + Taxes

Taxes = $120,000 - $70,000 - $12,000

Taxes = $38,000

Therefore, the answer is (C) $38,000.

Scenario 13-1 -Refer to Scenario 13-1