How will an increase in the government budget surplus as a result of lower government spending (with no change in net taxes)affect private saving in the economy?

Question

Quizplus · Accepted Answer

The increase in government budget surplus resulting from lower government spending with no change in net taxes implies that public savings would increase. With no change in net taxes, private disposable income does not change, and therefore private saving is not directly affected. However, when public savings increase, the country is saving more overall, and this is expected to put downward pressure on interest rates, leading to an increase in investment expenditure. As a result, private savings would decrease, but the decrease would be less than the increase in public savings, leading to a net increase in national savings.

How Will an Increase in the Government Budget Surplus as a Result