If a country's economic data shows private savings of $500 million, government

spending of $300 million, tax revenue of $400 million, and a trade surplus of $100

million, then what does investment equal?

A. $600 million

B. $500 million

C. $700 million

D. $900 million

Answer

Investment equals B) $500

Explanation:

We first lay out the national income identity in this form:

Y-C-G = I + NX

Where:

Y-C-G = National Saving

I = Investment

NX = Net exports (when NX is posivite, the economy is running a trade surplus).

National Saving = Private Saving + Public Saving (Tax revenue minus Government spending ($400 - $300))

National Saving = $500 million + $ 100 million

National Saving = $600 million

Now we plug the amounts into the identity =

$ 600 million = I + $ 100 million

We rearrange terms

$600 million - $100 million = I

$500 million = I

So, Investment is $500 million