Question

a sales tax cut in a small open economy with a trade surplus decrease government saving, private saving and national saving

true or false

Answer 1

** Please upvote if answer was helpful **

The answer is False

A sales tax cut in a small open economy with a trade surplus will mean that the economy has higher exports compared to imports. As a result, the government does not have to boost economy with public expenditure and hence the government savings will not decrease. Meanwhile private investment may increase because of the booming export market. Also a fall in sales tax will mean that domestic prices will be low and hence more will be spent in the local economy which will again increase consumption.