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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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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