What does this imply about the effect on Investment of a government budget deficit?
In a closed economy, show how we derive the Savings=Investment equilibrium condition in such a way that we can show the interaction between private savings and government savings. What does this imply about the effect on Investment of a government budget deficit?
Investment best answer:
Answer by Psyengine
There is no 'interaction' between private savings and government savings. When the saving rate goes up, being relative to spending rates, spending rates go down. Investment is not assumed to be cash savings account, but could be term deposit contracts. Government deficits, if turned over to money's owing, could increase interest costs as credit or borrowed money. This would increase taxation and/or decrease available funds for government expenditure.
Investment
2013-05-16 Russell Investments Center
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2013-05-16 Russell Investments Center
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