Suppose that the economy is in equilibrium with a trade deficit and that saving is greater than investment. According to the circular flow model, the government's budget a. must be in deficit b. must be in surplus c. must be balanced d. could be in a surplus or a deficit

Suppose that the economy is in equilibrium with a trade deficit and that saving is greater than investment. According to the circular flow model, the government's budget a. must be in deficit b. must be in surplus c. must be balanced d. could be in a surplus or a deficit

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section11.B: Algebraic Treatment Of Taxes And Fiscal Policy

Problem 3TY

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Concept explainers

Public Saving

Public saving deals with the amount which has been in excess after meeting all the obligatory expenses and investment of the government. Taxes are collected by the government to meet its day-to-day expenditures. The obligatory expenses include all those expenses which are mandatory for the government. It cannot be avoided as it is inevitable.

Question

Suppose that the economy is in equilibrium with
a trade deficit and that saving is greater than
investment. According to the circular flow model,
the government's budget
a. must be in deficit
b. must be in surplus
c. must be balanced
d. could be in a surplus or a deficit

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