Consider the following data for a closed economy: a. Y = 12 ...

[geoffrey]

Consider the following data for a closed economy:
  a. Y = 12 trillion
  b. C = 8 trillion
  c. I = 3 trillion
  d. TR = 2 trillion
  e.
 
  T = 3 trillion
 
  Use the data provided to calculate the level of private saving and the level of public saving and demonstrate their relationship to investment.

Question 2

An optimal two-part tariff pricing schedule maximizes consumer surplus.
 
  Indicate whether the statement is true or false

[mcni194]

Answer to Question 1

Private saving is equal to Y + TR - C - T, and public saving is equal to T - G - TR. Plugging in the appropriate numbers for private saving, private saving = Y + TR - C - T = 12t + 2t - 8t - 3t = 3 trillion. Using the identity for output in a closed economy, G = Y - C - I = 12t - 8t - 3t = 1t, so public saving = 3t - 1t - 2t = 0. Adding together private saving of 3 trillion and public saving of 0 yields saving of 3 trillion, which is exactly equal to investment of 3 trillion.

Answer to Question 2

FALSE