Question #78

If a household saves a higher proportion of their income they will have higher future consumption possibilities. Therefore if all households save a higher proportion of their income then all households will have higher future consumption possibilities. This logic is

• is only true if interest rates rise and deliver higher returns on the saving.
• is only true if government increases its deficit in line with the saving increase.
• is only true if taxation is held constant.

Answer #770

Answer: is only true if government increases its deficit in line with the saving increase.

Explanation

Please read Balance sheet recessions and democracy for more information or post a comment if you are unsure.