Question

How will the increase in government spending financed by borrowing affect national savings? ap macro.

Answer 1

A lot of issues affect an economy. when government borrowing to finance the economy, an increase in the deficit will lead to high increase in interest .

• Higher interest rates will tend to limit or “crowd out” a lot of private investment, and this in turn will limit growth.

How will the financing of government spending influence national savings?

Due to an  increase in government expenditures, the government finances  will have to try and get additional spending via borrowing.

This then will bring about reduction in public savings. When private savings are unaffected, the effect of a reduction in public savings will tend to lower the total levels of national savings.

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