suppose the government borrows $20 billion more next year.
what will happen to the investment ? private saving? to public saving? to national saving? compare the size of the change to $20 billion of extra government borrowing
To understand the effects of the government borrowing an additional $20 billion next year on investment, private saving, public saving, and national saving, we need to break down each concept:
1. Investment: When the government borrows money, it usually reduces the funds available for private investment. This is because government borrowing competes with private borrowing for available savings, leading to a decrease in investment. Therefore, it is likely that the level of investment will decrease to some extent when the government borrows an additional $20 billion.
2. Private Saving: Private saving refers to the amount of income that households and businesses save after deducting their consumption expenses. When the government borrows more, it typically leads to a decrease in private saving. This happens because individuals and businesses may have less disposable income to save due to higher taxes or reduced government spending on public programs. The decrease in private saving could be proportional to the increase in government borrowing, but the exact impact would depend on various factors.
3. Public Saving: Public saving is the difference between government revenue and government spending. If the government borrows an additional $20 billion next year, it means that government spending will exceed revenues by that amount. As a result, public saving will decrease by $20 billion.
4. National Saving: National saving is the sum of private saving and public saving. If the government's additional borrowing leads to a decrease in private saving and a decrease in public saving, then national saving will also decrease. The decrease in national saving could be equivalent to the decrease in private saving plus the decrease in public saving.
Comparing the size of the change to $20 billion of extra government borrowing depends on the specific impact on each element (investment, private saving, public saving, and national saving). Without more information, it is challenging to predict the exact magnitude of change for each variable. However, generally, the change in investment and private saving is likely to be negative, while the change in public and national saving will decrease by $20 billion.