Assume there is no foreign trade,the government sector has a balanced budget,and the economy is in equilibrium.If actual investment is greater than desired investment,then it is most likely that
A)Saving plus government spending is greater than investment plus taxes.
B)Saving plus taxes is greater than investment plus government spending.
C)Investment plus taxes is greater than saving plus government spending.
D)Investment plus government spending is greater than saving plus taxes.

Question

Quizplus · Accepted Answer

Actual investment being greater than desired investment means that there is an unplanned increase in inventory, which may lead to a decrease in production and employment. To restore equilibrium, saving and taxes must increase, which in turn will decrease consumption and ultimately decrease actual investment to match desired investment. This can be achieved by reducing government spending or increasing taxes. Therefore, savings plus taxes are greater than investment plus government spending.

Assume There Is No Foreign Trade,the Government Sector Has a Balanced