What would be the effect on national saving (S) if there was an equal-sized reduction in...
- What would be the effect on national saving (S) if there was an equal-sized reduction in both government purchases (G↓) and personal taxes (T↓)? Up, Down, or Same?
Homework Answers
National savings ( S) = Private sanings + Public savings = ( Y - C - T ) + ( T- G )
S = Y - C - T + T - G = Y - C - G
Equal sized reduction in G and T , so public savings in unchanged ( T - G ) . Private savings rises ( Y - C - T ) .
So we can see that Taxes ( T ) does not affect S . If there is increase or decrease in T , it cancels out .
If G reduces then Savings rises . Answer : Up .
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What would be the effect on national saving (S) if there was an
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