A temporary increase in government purchases, when total output held constant, would
A) reduce desired consumption but would increase desired national saving.
B) increase desired consumption but would reduce desired national saving.
C) increase both desired consumption and desired national saving.
D) reduce both desired consumption and desired national saving.

Question

Quizplus · Accepted Answer

A temporary increase in government purchases reduces national saving because it decreases the amount of resources available for private saving, as the government is using more resources. It also reduces desired consumption because individuals anticipate higher future taxes to pay for the increased government spending, leading them to save more and consume less in the present.

A Temporary Increase in Government Purchases, When Total Output Held