In a closed economy, if Y, C, and T remained the same, an increase in G would reduce
A)private saving and public saving.
B)private saving but not public saving.
C)public saving but not private saving.
D)neither private nor public saving.

Question

Quizplus · Accepted Answer

In a closed economy, the formula for saving is S = Y - C - G, where S is saving, Y is income, C is consumption, and G is government spending. Therefore, an increase in G while Y, C, and T remain the same would decrease saving (S) since there is now less income available after deducting government spending. Specifically, public saving (T-G) would decrease, as government spending (G) now exceeds tax revenue (T), but private saving (Y - C - T) would remain the same. Therefore, the correct answer is C, as an increase in G would reduce public saving but not private saving in a closed economy with constant Y, C, and T.

In a Closed Economy, If Y, C, and T Remained