Question

Public saving is negative when:A. there is a government budget surplus.B. there is a government budget deficit.C. the government's budget is balanced.D. after-tax income of households and businesses is greater than consumption expenditures.

Answer 1

Answer: Option (B) is correct.

Explanation:

Public saving refers to the tax revenue amount that a government left with after paying for its expenditure or spending.

Public saving = Tax revenue - Spending

Private saving refers to the after tax income of the individuals after paying for their consumption and taxes.

Suppose there is a government budget deficit, in this situation government's expenditure is greater than government's receipts. This means that tax revenue is not enough to pay out its expenditure.

Therefore, this will lead to negative public savings.