In: Economics
Does it make more sense to debate the level of debt or the debt to GDP ratio? Explain. Please state yes or no before going into details
Based on the national saving and investment identity, explain how each of the following might react to greater government budget deficits. Be sure to consider all possibilities.
a. Private saving Increases with the Gov Deficit
b. Investment
c. Savings by the rest of the world
The second factor will increase the world saving, as the income in the local income will rise with higher government deficit people will demand more and imports will increase. The income of other economies will increase with exports and therefore their saving will increase too. Overall increase or decrease will be the tradeoff between these two factors.