If the public reduces consumption by Rs 100 billion while the government increases its spending by Rs 100 billion, assuming all other factors remain constant, which statement is correct?

Show Answers

Saving remains the sameSaving rises, leading to faster economic growthSaving declines, resulting in slower economic growthInsufficient data to conclude the impact on savingNone of the above

Explanation

When public consumption decreases by Rs 100 billion and government spending rises by the same amount, total saving does not change because the reduction in private consumption offsets the increase in government expenditure.