In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving?
A)Public and national saving would rise.
B)Public and national saving would fall.
C)Public saving would rise and national saving would fall.
D)Public saving would fall and national saving would rise.

Question

Quizplus · Accepted Answer

Public saving would fall because an increase in G (government spending) with unchanged T (taxes) reduces the budget surplus or increases the deficit. National saving, which is the sum of public and private saving, would also fall because the decrease in public saving outweighs the smaller decrease in private saving (since C fell by less than the rise in G).

In a Closed Economy, If Y and T Remained the Same