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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

If the government collects more in tax revenue than it spends, and households consume more than they get in after-tax income, then

a. private and public saving are both positive.

b. private and public saving are both negative.

c. private saving is positive, but public saving is negative.

d. private saving is negative, but public saving is positive.

To determine

The Private savings and Government savings.

Explanation

The savings is the revenue left after the spending. There are mainly three types of incomes, namely Private income, Government income and the National income. The personal income refers to the income of the individual or the consumer. When the personal income tax is paid out from the income of the individual, the remaining amount is known as the private savings.

The government savings is the savings left with the government after different spending made by the government. The income of the government is the tax revenue collected by the government. The spending of the government includes different spending of the public programs. The remaining portion of the government income after the spending is known as the government savings. The national income on the other hand is the summation of the private savings and the government savings.

Option (d):

The after tax income of the individuals is known as the private disposable income. The income left behind after private spending is known as the private savings of the individuals. They uses this after tax income to make their consumptions. When the consumption spending is more than the after tax income of the individual, there will be nothing left behind to save by the individual and so, the private savings will be negative. In the case of the government, when the government collects more tax revenue than it spends, it increases the government savings. Thus, option 'd' is correct.

Option (a):

The after tax income of the individuals is known as the disposable income. The part of this disposable income left after consumption is known as the private savings...

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