\"An increase in Government transfers to households (e.g., unemployment insuranc

Question

"An increase in Government transfers to households (e.g., unemployment insurance payments) not accompanied by an increase in taxes will cause the economy's level of saving to increase." Indicate whether this statement is true or false and explain why. "An increase in Government transfers to households (e.g., unemployment insurance payments) not accompanied by an increase in taxes will cause the economy's level of saving to increase." Indicate whether this statement is true or false and explain why.

Explanation / Answer

TRUE

The statement "An increase in Government transfers to households (e.g., unemployment insurance payments) not accompanied by an increase in taxes will cause the economy's level of saving to increase.' is true because as the government increases it's transfers , the income or disposible income of the households increase and also since Marginal propensity to consume remain same , and also Marginal propensity to save remaining same , an increase in income due to transfers will lead to increase in the savings.

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