The country of Hykenia does not trade with any other country. Its GDP is $20 billion. Its government collects $4 billion in taxes and pays out $3 billion to households in the form of transfer payments. Consumption equals $15 billion and investment equals $2 billion. What is public saving in Hykenia, and what is the value of the goods and services purchased by the government of Hykenia?

- $2 billion and $3 billion

Explanation:

Government spending

GDP = C + I + G (X - M)

Since it's a closed economy, there will be no export or import

GDP= C + I + G

Where GDP is $20 billion

Investment (I) is $2 billion

G is Government spending

GDP= C + I + G

20=15 + 2 + G

20= 17 + G

Make G the subject of the formula

G= 20 - 17

G= $3 billion

In a closed economy, public saving is known as budget surplus/deficit ie (T-G-TR)

Where T is tax

G is Government expenditures on goods and services

TR is Transfer payments

Public saving= T - G - TR

Public saving=$4bn - $3bn - $3bn

Public saving= - $2 billion.

It's a budget deficit.

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