Question

Suppose private saving in a closed economy is $12 billion and investment is $10 billion. Which of the following are true?

A. national saving must equal $12 billion
B. public saving must equal $2 billion
C. Government budget surplus must equal $2 billion
D. Government budget deficit must equal $ 2 billion

Answer 1

The national saving must equal $12 billion, but public saving and the government budget surplus or deficit can vary.

Step-by-step explanation:

The national saving and investment identity states that national saving equals investment in a closed economy. In this case, the private saving is $12 billion and the investment is $10 billion, so national saving must be equal to $12 billion because they are equal.

Therefore, option A is true. However, option B, C, and D are not necessarily true. Public saving refers to the government's saving, which is the difference between tax revenue and government spending. The government's saving could be positive or negative, depending on whether the government has a budget surplus or deficit. Similarly, the government's budget surplus or deficit does not have to be equal to $2 billion. It depends on the specific numbers for tax revenue, government spending, and private saving.