If austerity led to all national governments simultaneously running public surpluses (which is the aim) then it would be impossible for all their respective private domestic sectors to save overall.
Answer: True
The answer is True.
The question tests a knowledge of the sectoral balances and their interactions, the behavioural relationships that generate the flows which are summarised by decomposing the national accounts into these balances, and the constraints that is placed on the behaviour within the three sectors that is evident in the requirement that the balances must add up to zero as a matter of accounting.
Refer to answer above for derivation.
The private domestic sector is only one part of the non-government sector - the other being the external sector.
Most countries currently run external deficits. This means that if the government sector is in surplus the private domestic sector has to be in deficit.
However, some countries have to run external surpluses if there is at least one country running an external deficit. That country can depending on the relative magnitudes of the external balance and private domestic balance, run a public surplus while maintaining strong economic growth. For example, Norway.
In this case an increasing desire to save by the private domestic sector in the face of fiscal drag coming from the budget surplus can be offset by a rising external surplus with growth unimpaired. So the decline in domestic spending is compensated for by a rise in net export income.
So if all governments (in all nations) are running public surpluses and some nations are running external deficits (the majority), public surpluses have to be associated (given the underlying behaviour that generates these aggregates) with private domestic deficits.
Even if the external sector balance was zero, the proposition would still be true. At least one private domestic sector would be unable to save overall.
These deficits can keep spending going for a time but the increasing indebtedness ultimately unwinds and households and firms (whoever is carrying the debt) start to reduce their spending growth to try to manage the debt exposure. The consequence is a widening spending gap which pushes the economy into recession and, ultimately, pushes the budget into deficit via the automatic stabilisers.
So you can sustain economic growth with a private domestic surplus and government surplus if the external surplus is large enough. So a growth strategy can still be consistent with a public surplus.
Clearly not every country can adopt this strategy given that the external positions net out to zero themselves across all trading nations. So for every external surplus recorded there has to be equal deficits spread across other nations.
You might like to read these blogs for further information: