Please provide an explanation Private saving is positive when___and Public savin

Question

Please provide an explanation

Private saving is positive when___and Public saving is positive when___ after tax income of households and business are greater than expenditures; the government runs a surplus after tax income of households and business are greater than expenditures; the government runs a deficit after tax income of households and business are less than expenditures; the government runs a surplus the government runs a surplus; after tax income of households and business are greater than expenditures

Explanation / Answer

Private saving is calculated as follows -

Private saving = After tax income of households - Expenditure of households

As above equation shows,

The value of private saving can only be positive, if after tax income of households is greater than the expenditure of households.

On the other hand, the value of private saving would be negative, if after tax income of households is less than the expenditure of households.

So, private saving is positive when after tax income of households is greater than the expenditure of households.

Public savings is caclulated as follows -

Public saving = Government revenue - Government expenditure

As above equation shows,

The value of public saving can only be positive when government revenue is greater than government expenditure. When government revenue is greater than government expenditure, it is said that government is running a surplus. So, when government runs a surplus, public saving is positive.

The value of public saving would be negative when government revenue is less than government expenditure. When government revenue is less than government expenditure, it is said that government is having a deficit. So, when government runs a deficit, public saving is negative.

So, public saving is positive when government runs a surplus.

Hence, the correct answer is option (1).

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