Question

The uses-of-saving identity shows that for the current account balance to rise, then one of the following must happen.

A. Private saving must rise, investment must fall, the government budget deficit must fall

B. Private saving must rise, investment must fall, the government budget deficit must rise

C. Private saving must fall, investment must rise, the government budget deficit must fall

Private saving must rise, investment must fall, the government budget surplus must fall

Answer 1

C. Private saving must fall, investment must rise, the government budget deficit must fall

Reason

If the budget deficit fall one or a combination of the following happen

1) private saving must fall
2) investment must increase
3) the current account balance must increase or rise.

or opposite to it

If the budget deficit increases one or a combination of the following happen

1) private saving must rise
2) investment must fall
3) the current account balance must fall