If the public consumes Rs 100 billion less and the government purchases Rs100 billion more (other things unchanging), Which of the following statement is true ?
Correct answer: A. Saving is unchanged
- A. Saving is unchanged
- B. There is an increased in saving and the economy should grow more quickly
- C. There is a decrease in saving and the economy should grow more slowly
- D. There is not enough information to determine what will happen to saving
Explanation
National saving equals income minus private consumption and government purchases. A Rs 100 billion fall in consumption raises saving by Rs 100 billion, while an equal rise in government purchases lowers it by Rs 100 billion, leaving saving unchanged.
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