Question #47

A national spending gap will emerge if desired domestic saving suddenly exceeds domestic investment. The sectoral balances relationship (from the national accounts) shows that

• it is important in these situations to always increase the budget deficit to match the fall in private spending.
• it is important in these situations for banks to reduce interest rates to stimulate investment.
• the resulting spending gap may manifest as a combination of rising net exports and/or rising budget deficits.

Answer #481

Answer: the resulting spending gap may manifest as a combination of rising net exports and/or rising budget deficits.

Explanation

Please read Norway and sectoral balances or post a comment for further discussion.