Question

A) based on the national saving and investment identity, what are the three ways the macroeconomy might react to greater government budget deficits?

Answer 1

Based on the national saving and investment identity, the three ways the macro economy might respond to greater government budget deficits are reduced investments, a wider trade deficit and increased savings. In addition, larger budget deficits upsurge the demand for capital which pushes up interest rates and make private sector investment more costly.