The government budget deficit must be equal to the surplus
A)of saving over investment.
B)in the current account in international trade.
C)of saving over consumption.
D)of saving over investment plus the trade deficit.

Question

Quizplus · Accepted Answer

The government budget deficit must be equal to the sum of national savings and the trade deficit. This is because government borrowing competes with private borrowers for available funds. If the government borrows more, it reduces the amount of funds available for private investment, leading to a decrease in investment and ultimately lower economic growth. Therefore, the government must balance its budget with the savings of the private sector and the trade deficit. Choice D is the only option that includes both saving and the trade deficit.

The Government Budget Deficit Must Be Equal to the Surplus