Gross domestic product (GDP) is both total income in an economy and the total expenditure on the economy’s

output of goods and services. GDP (denoted as Y) is divided into four components of expenditure: consumption (C),
investment (I), government purchases (G), and net exports (NX).
We write: Y = C + I + G + NX.
We simplify our analysis by assuming that the economy we are examining is closed. A closed economy is one that
does not interact with other economies. In particular, a closed economy does not engage in international trade in
goods and services, nor does it engage in international borrowing and lending. Because a closed economy does not
engage in international trade, imports and exports are exactly zero. Therefore, net exports (NX) are also zero.
We can now simplify the identity as Y = C + I + G.
To see what this identity can tell us about financial markets, subtract C and G from both sides of this equation.
We then obtain Y - C - G = I.
The left side of this equation (Y - C - G) is the total income in the economy that remains after paying for
consumption and government purchases: This amount is called national saving, or just saving, and is denoted S.
Substituting S for Y − C − G, we can write the last equation as S = I.
This equation says that saving equals investment. To understand the meaning of national saving, it would be helpful
to use the definition a little more. Let T denote the amount that the government collects from households in taxes
minus the amount it pays back to households in the form of transfer payments (such as Social Security and welfare).
We can then write national saving in either of two ways: S = Y - C - G or S = (Y - T - C) + (T - G).
These equations are the same, but each show a different way of thinking about national saving, the second equation
divides national saving into two parts: private saving (Y - T - C) and public saving (T - G).
. Private saving is the amount of income that households have left after paying their taxes and paying for their
consumption. Public saving is the amount of tax revenue that the government has left after paying for its spending..
If T is bigger than G, the government runs a budget surplus because it receives more money than it spends. This
surplus of T - G represents public saving. If the government spends more than it receives in tax revenue, then G is
bigger than T. In this case, the government runs a budget deficit

Question:
1. In closed economy,
A. Y = C + I + G + NX
B. Y = C + I + G
C. Y = C + I + NX
D. Y = C + G + NX
2. Private saving is
A. Y – C – G
B. T – G
C. Y – T – C
D. C + I + G
3. If T < G,
A. The government runs a budget surplus
B. Public saving is a positive number
C. Public saving is zero
D. The government runs a budget deficit