Question

if private savings equals $1.2 billion and private investment equals $1.5 billion, then there is a question 2 options: government sector deficit. private sector surplus. private sector deficit. government sector surplus. current account balance.

Answer 1

It seems to be a private sector deficit when private investment outpaces private savings. However, this deficit can be offset by the government sector or current account balance. The private saving behavior doesn't always fully adjust to complement government budget deficits or surpluses.

Step-by-step explanation:

In this scenario, if private savings equals $1.2 billion and private investment equals $1.5 billion, the difference indicates a deficit in the private sector. This is because investment has outpaced saving, suggesting funds have been borrowed to support the excess investment. This can be referred to as a private sector deficit. However, this deficit can be counteracted by a surplus or deficit in the government sector or even a current account balance.

Historically, the private sector doesn't always fully adjust its saving behavior to offset government budget surpluses or deficits. When government borrowing increases, private saving tends to increase to some extent, but not necessarily enough to fully counteract the budget deficit. This relationship can be influenced by various factors, including macroeconomic conditions and policy decisions.

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