The private sector balance is equal to savings ________ investment and the government sector balance is equal to government expenditure ________ taxes. If there is a deficit in the private sector balance and a deficit in the government sector balance, then there must be a ________ in net exports.

Question

Quizplus · Accepted Answer

According to the national income accounting identity, private saving (which is equal to the private sector balance) must be equal to investment, and government expenditure must be equal to taxes plus net exports. If both the private sector and government sector have deficits, then there must be a deficit in net exports to balance the equation. Therefore, the correct choices are minus for private sector balance, minus for government sector balance, and deficit for net exports, which is only satisfied by choice C.

The Private Sector Balance Is Equal to Savings ________ Investment