Consider the long-run theory of investment,saving,and growth.Suppose the government has a budget deficit of $400.If the country's level of national saving is $200,then private saving must be

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According to the national income accounting identity, Y = C + I + G + NX, where Y is national income, C is consumption, I is investment, G is government spending, and NX is net exports. In the long-run theory of investment, saving, and growth, it is assumed that investment equals saving, so I = S. Therefore, Y = C + S + T, where T is taxes (assumed to equal government spending in this case). Rearranging, we get S = Y - C - T.

In this scenario, government spending (G) is equal to $400 and national saving (S) is equal to $200. Therefore, we can write:

Y - C - G = $200

Since we know that G = $400, we can rearrange the equation to solve for private saving (Sprivate):

Y - C - $400 = $200
Y - C = $600

Sprivate = Y - C - Sgovt
Sprivate = Y - C - $200
Sprivate = $600 - $200
Sprivate = $400

Therefore, private saving must be $400, which is answer choice D.

Consider the Long-Run Theory of Investment,saving,and Growth