When the government share of GDP increases,
A)there is a downward movement along the national saving rate line.
B)the national saving rate line shifts to the right.
C)the national saving rate line shifts to the left.
D)there is an upward movement along the national saving rate line.
E)the national saving rate is unaffected.

Question

Quizplus · Accepted Answer

When the government share of GDP increases, it means the government is spending more and/or taxing more. This reduces disposable income and thus reduces private savings. As a result, the national saving rate decreases and the national saving rate line shifts to the left. Therefore, option C is the correct answer.

When the Government Share of GDP Increases