Question

3. Explain both verbally and graphically how the expansionary fiscal policy in a large and open economy is financed using the national saving model. NS = S + (T-G) = ?

Answer 1

Explain both verbally and graphically how the expansionary fiscal policy in a large and open economy is financed using the national saving model. NS = S + (T-G) = ?

Answer: if there is recession than the this type of situation is balanced by government . government in recession spend more by borrowing more , gpvernment spending increases and private investment reduces, this condition is called crowding out efffect . In the case of expansionary fiscal policy , if government reduces tax than people will have more money to spend and they demand more .

if taxes increases than private saving will decrease and public saving will increase . national saving will decrease if there is increase in government spending ( G ) and decrease in taxes .