My textbook had a question where it said that the government’s budget for normal
ID: 1248250 • Letter: M
Question
My textbook had a question where it said that the government’s budget for normal, operational expenses was $30 billion in debt. From the answer given in the textbook, I see that the book expected me to give a value for Sg of -$30 billion. I got the question wrong because I gave the -$30 billion value to G instead. I thought that Sg is investments in the economy made by the gov, and G is general expenses of the government. I now see that this is wrong. Is there a clear explanation of what the difference is between Sg and G?Thank you
Explanation / Answer
Take an example of a simple closed economy:
Disposable income= Y- Taxes.
DI= Consumption + Saving private (Sp)
DI= C+ Sp
Government receives revenue through taxes
Revenue= Taxes
Out of these taxes government spend for several activities. This is called G (Government spending).
Taxes - Government spending= Savings by government (Sg)
T-G= Sg
When government spending is more than the revenue received through taxes. There will be deficit, or negative saving.
For Ex: Governemnt revenue is $100, and its spends $40, than it saves $60
T-G= Sg
100- 40= 60 ( budget surplus ar saving)
If Government spending is $130,
100 - 130= -30
which is a defict in the budget.
In the problem, it was mentioned a debt, it is noting but a deficit. So instead of saving we had incurred debt of $30billion.
Hence Sg= - $30.
G is not general expenditure, it includes both revenue and capital expenditure. Total expenditure by government.
For running governemt and for investments.
Total revenue = G +Sg
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