What are the answer and explanation for this question? Thanks! Which of the foll

Question

What are the answer and explanation for this question? Thanks!

Which of the following must be true in an economy with a government but with no foreign trade?

A. Household saving will be equal to investment.

B. The sum of consumption and saving will be equal to the sum of income and taxes.

C. The sum of household income and business profits must be equal to the sum of consumption, government spending, and investment.

D. An increase in the government deficit will force an increase in investment.

E. If the government has a balanced budget, household consumption will equal the difference between income and saving.

Explanation / Answer

Ans.

A. Household saving will be equal to investment. TRUE (only source of investment)

B. The sum of consumption and saving will be equal to the sum of income and taxes. FALSE (Only income, not taxes)

C. The sum of household income and business profits must be equal to the sum of consumption, government spending, and investment. FALSE

D. An increase in the government deficit will force an increase in investment. FALSE (interest rate rises, due to fiscal expansion and investment falls)

E. If the government has a balanced budget, household consumption will equal the difference between income and saving. TRUE

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