If the government runs a budget deficit, then

Question

Quizplus · Accepted Answer

When the government runs a budget deficit, it means that its expenditures exceed its revenues, leading to borrowing to finance the deficit. This borrowing can be financed through savings from both households and businesses, not just one or the other. National saving consists of the sum of private saving (from households and businesses) and public saving (from the government budget). A government deficit reduces public saving and therefore national saving, but it does not mean national saving is negative or that national saving cannot fund investment. It simply means that a portion of the existing national saving is used to finance the government's deficit.

If the Government Runs a Budget Deficit, Then