In a closed economy, national savings will be _______ private savings if the government runs a _______.

Question

Quizplus · Accepted Answer

In a closed economy, national savings is equal to private savings plus public savings. Public savings is equal to government revenue minus government spending. If the government runs a deficit, its spending exceeds its revenue, leading to negative public savings. Thus, the equation becomes:

National savings = Private savings + (Government revenue - Government spending)

Since the public savings is negative, national savings will be lower than private savings. Therefore, the correct answer is A: lower than; deficit.

In a Closed Economy, National Savings Will Be _______ Private