If the government runs a budget deficit, then

Question

Quizplus · Accepted Answer

When the government runs a budget deficit, it means that its spending exceeds its revenues. To finance this deficit, the government can borrow, either from domestic or foreign sources. This borrowing can come from both households and businesses, who may be willing to lend to the government through the purchase of government bonds. Therefore, part of household and business savings can finance the deficit, making choice B the correct answer. Option A is incorrect because investment can still be funded through borrowing, even if national saving is negative. Option C is incorrect because national saving can still be positive if private saving is higher than government dissaving. Option D is incorrect because both households and businesses can contribute to financing the deficit.

If the Government Runs a Budget Deficit, Then