Consider a closed economy. In which of the following cases national saving must equal private saving?
A)Private saving is equal to government expenditures.
B)Public saving is equal to investment.
C)After paying their taxes and paying for their consumption, households have nothing left.
D)The government's tax revenue is equal to its expenditures.

Question

Quizplus · Accepted Answer

In a closed economy, national saving is the sum of private saving and public saving. Public saving is the difference between government tax revenues and government expenditures. When the government's tax revenue is equal to its expenditures (choice D), public saving is zero. In this case, national saving must equal private saving, because there is no public saving to add or subtract from the private saving.

Consider a Closed Economy