An increase in G reduces the national saving rate.

Question

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When the government increases its spending (G), it can either raise taxes or borrow from the public to finance its expenditure. If taxes are raised, households and firms have less disposable income to save, which lowers the national saving rate. If the government borrows from the public, it competes with private borrowers for funds, which can drive up interest rates and discourage saving. Both scenarios result in a decrease in the national saving rate.

An Increase in G Reduces the National Saving Rate