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27 April, 12:10

The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $6 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 billion. What is investment in Growpaw? a.$5 billionb.$4 billionc.$3 billiond.$2 billion

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Answers (1)
  1. 27 April, 14:33
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    option a) 5 billion

    Explanation:

    Data provided in the question:

    GDP = $20 billion

    Cost of goods and services = $3 billion

    Tax collected = $6 billion

    Transfer payments to households = $2 billion

    Private saving in Growpaw = $4 billion

    Now,

    Disposable income = GDP - taxes + transfer payments

    =$20 billion - $6 billion + $2 billion

    = $16 billion

    Consumption = Disposable income - Savings

    = $16 billion - $4 billion

    = $12 billion

    Thus,

    Investment = GDP - consumption - government purchases

    = $20 billion - $12 billion - $3 billion

    = $5 billion

    Hence,

    the correct answer is option a) 5 billion
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