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18 July, 10:31

In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy? A. Private saving is equal to government expenditures. B. Public saving is equal to investment. C. After paying their taxes and paying for their consumption, households have nothing left. D. The government's tax revenue is equal to its expenditures

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  1. 18 July, 12:28
    The correct answer is D


    A closed economy is one in which the national savings equal the sum of public and private savings. National savings is however the total income that is left after government expenditure.

    If Government Tax revenue = Government expenditure

    That means that National Savings = 0

    This is to say that the government spent all revenue they generated.

    Since for a closed economy National savings = Public savings + Private savings

    Therefore, Public savings + Private savings = 0

    Thus Public savings = Private saving
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