Savings and investment (Chapter 8)

Question 1

closed economy

Answer 1

• in closed economy, no international trade, so net exports = 0
• in closed economy, GDP - consumption (C) - government spending (G) = investment (I)

Question 2

open economy

Answer 2

• in open economy, GDP = consumption (C) + investment (I) + government spending (G) + net exports (NX)

Question 3

national savings (S)

Answer 3

• the total income in the economy that remains after paying for consumption and government purchases

Question 4

private savings (PS)

Answer 4

• the total income that households have left after paying for taxes and consumption.
  = GDP - consumption (C) - taxes

Question 5

public saving or government budget (GB)

Answer 5

• the tax revenue that the government has left after paying for its spending.
  = taxes - government spending (G)

Question 6

crowding out

Answer 6

• a decrease in investment the results from government borrowing