The uses-of-saving identity shows that if the government budget deficit rises,then which of the following must happen?
A)Private saving must rise,investment must fall,and/or the current account must fall.
B)Private saving must rise,investment must fall,and/or the current account must rise.
C)Private saving must rise,investment must rise,and/or the current account must fall.
D)Private saving must rise,investment must rise,and/or the current account must rise.

Question

Quizplus · Accepted Answer

The uses-of-saving identity states that domestic investment plus the current account balance equals national saving. If the government budget deficit rises, it means that the national saving will reduce. To keep the uses-of-saving identity in balance, one of the following must happen:

- Private saving must rise,
- Investment must fall, and/or
- The current account must fall.

Therefore, the correct answer is A. Private saving must rise, investment must fall, and/or the current account must fall.

The Uses-Of-Saving Identity Shows That If the Government Budget Deficit