Suppose an economy’s national accounts are gnp = 100, c = 70, i = 40, g = 20 and ex = 20 where gnp is gross national product, c is consumption, i is investment, g is government spending, and ex is exports. using the national income identity, find the value of imports (im). what is the current account balance? what is the (economy-wide) savings rate (note: saving rate = s/y)? what would the government, private, and total savings rate be if the government reduced taxes t = 10 while the other variables remain unchanged?

Imports is 50.

Current account balance is -30.

Total savings is 30.

After tax reduction total savings is 10.

Explanation:

GNP is given as  100.

The consumption expenditure is 70.

The investment expenditure is 40.

The government spending is 20.

The exports are given as 20.

GNP = C + I + G + EX - IM

100 = 70 + 40 + 20 + 20 - IM

100 = 150 - IM

IM = 50

The current account balance is the difference between exports and imports.

Current account balance

= EX - IM

= 20 - 50

= -30

Total savings in the economy is the difference between disposable income and consumption.

Total savings

= Y - C

= 100 - 70

= 30

In case government reduces taxes, the private saving will increase while the public saving will decrease.

Private saving

= Y - T - C

= 100 - 10 - 70

=20

Public saving

= T - G

= 10-20

= -10

Total saving

= Private saving + Public saving

= 20 + (-10)

= 20 - 10

= 10