Suppose that every additional 3 percentage points in the investment rate boosts GDP growth by 1 percentage point. Assume also that all investment must be financed with consumer saving. Note: Investment rate = Investment/GDP The economy is currently characterized by Consumption: $12 trillion Saving (= Investment): $2 trillion GDP: $14 trillion If the goal is to raise the growth rate by 2 percentage points, a. by how much must investment increase? billion b. by how much must consumption decline? billion

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Public Saving

Public saving deals with the amount which has been in excess after meeting all the obligatory expenses and investment of the government. Taxes are collected by the government to meet its day-to-day expenditures. The obligatory expenses include all those expenses which are mandatory for the government. It cannot be avoided as it is inevitable.