If national saving in a closed economy is greater than zero, which of the following must be true?
A)Either public saving or private saving must be greater than zero.
B)Investment is positive.
C) $$Y - C - G 0$$
D)All of the above are correct.

Question

If national saving in a closed economy is greater than zero, which of the following must be true?
A)Either public saving or private saving must be greater than zero.
B)Investment is positive.
C) $$Y - C - G > 0$$
D)All of the above are correct.

Quizplus · Accepted Answer

If national saving in a closed economy is greater than zero, it means that S > I (where S = national saving and I = investment). This can only be possible if one or both of the following are true:
- Public saving (T - G) is positive, i.e. the government is collecting more in taxes than it is spending.
- Private saving (Y - T - C) is positive, i.e. households and firms are spending less than their income.
Therefore, option A is correct.
Since S > I, it follows that I is positive. Therefore, option B is correct.
Finally, using the national income identity (Y = C + I + G), we can rearrange it to Y - C - G = I. Since S > I, it follows that Y - C - G > 0. Therefore, option C is correct. 
Hence, all of the options are correct, so the answer is D.

If National Saving in a Closed Economy Is Greater Than Y−C−G>0Y - C - G > 0Y−C−G>0

If National Saving in a Closed Economy Is Greater Than $Y - C - G > 0$