Suppose that the economy is in equilibrium with the government budget in surplus and with exports less than imports.According to the circular flow model,
A)saving must exceed investment
B)saving must be less than investment
C)saving must equal investment
D)saving could be greater than or equal to investment
E)it is impossible to determine anything about saving and investment using the given information

Question

Quizplus · Accepted Answer

In this scenario, the government budget is in surplus which means the government is saving more than it is spending. At the same time, imports are greater than exports indicating that the consumers are spending more on imports than they are earning through exports. As a result, the total saving (that includes the government's saving and private savings) will be less than the total investment. Therefore, the best choice is B, saving must be less than investment.

Suppose That the Economy Is in Equilibrium with the Government