Final answer:
The statement given in the question about financial independence is false; avoiding debt is part of becoming financially independent. Government spending and taxes affect the national savings and investment identity, with surpluses contributing to savings and deficits leading to borrowing.
Step-by-step explanation:
The financial independence formula proposed in the question, "Spend less than you earn, invest the surplus, and become in debt," is false. The phrase "and become in debt" contradicts the principles of financial independence. The correct formula for financial independence is to spend less than you earn, invest the surplus, and avoid debt. This approach enables you to build wealth over time and reduces the money you owe to others, optimizing your financial situation.
Government spending and taxes play a crucial role in the national savings and investment identity. When a government spends more than it collects in taxes, it results in a budget deficit (G - T > 0), which necessitates borrowing and positions the government as a demander of financial capital. Conversely, when a government has a budget surplus, where taxes exceed spending (T - G > 0), it contributes to the supply of financial capital, reflecting savings within the national economy.
Understanding governmental spending habits helps elucidate the dynamics of a country's financial capital. For instance, the U.S. government ran budget surpluses between 1998 and 2001, contributing to national savings. However, budget deficits, common in the U.S. since the 1970s, have positioned the government as a demander of capital. These deficits increase debt and the associated interest payments, which, even with constant government spending, can cause the deficit to grow and impact the overall economy.