Question

Consider a closed economy. In which of the following cases μst national saving equal private saving?

a) The government's tax revenue is equal to its expenditures
b) The government runs a budget deficit
c) Private investment increases
d) Exports exceed imports

Answer 1

In a closed economy, μst national saving equals private saving when the government's tax revenue is equal to its expenditures.

Step-by-step explanation:

In a closed economy, national saving is equal to private saving when the government's tax revenue is equal to its expenditures.

When the government's tax revenue is equal to its expenditures, there is no budget surplus or deficit. This means that the government is not contributing to or using up financial capital in the economy, and private saving equals national saving.

Option a) The government's tax revenue is equal to its expenditures is the correct option where μst national saving equals private saving.