In 2008, suppose Country A had net taxes of $30 million and government expenditures of $35 million. In addition, household saving in Country A totalled $5 million while consumption was
$80 million. The government of Country A is running a budget and national saving is
Million.
A) deficit; $5
B) surplus; $25
C) deficit; - $5
D) surplus; $5

Question

Quizplus · Accepted Answer

Net taxes is the difference between taxes and transfers. In this case, we are not given the amount of transfers, so we assume it to be zero. Therefore, net taxes = taxes = $30 million. 
National saving = household saving + government saving. 
Government saving is the difference between government revenue (net taxes in this case) and government expenditures, which is -$5 million ($30 million - $35 million). 
National saving = $5 million + (-$5 million) = $0 million.
Since government saving is negative, we have a budget deficit. Therefore, the correct choice is C.

In 2008, Suppose Country a Had Net Taxes of $30