1. Solve the following problem:
Suppose GDP is $8 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and public saving is $0.2 trillion. Assuming this economy is closed (GDP=C+I+G), calculate consumption, government purchases, national savings, and investment.
Show your work so that we can explain what went wrong if you miss any aspect of this.
2. Mankiw explains the role the federal government budgetary outcome (surplus or deficit) in determining the long run rate of Investment spending and thus economic growth. Let's take a look at the actual data for the period 1996 to the present to see what has actually happened.