<p>The increase in savings you described does happen, in the short-run. Remember, tho, investment and savings are flows. Accounting identities provide us truths about their ex-post behavior, not planned or desired savings. </p>

CC BY-SA 4.0
2019-05-10T11:25:56.463Z
I would add one point: a build up inventories counts as investment. So if we assume that the government raises taxes (for example), the drop in demand could lead to an inventory build up in the short term, hence higher investment.
Brian Romanchuk
CC BY-SA 4.0
2019-05-09T00:34:24.000Z
2019-05-09T00:34:24.000Z
Pedro Cavalcante
<p>From the closed economy equilibrium condition <span class="math-container">$I = S + (T - G)$</span>, how does exactly a surplus (which I assume would be used for paying debt) increases investment in the same amount? I ask that because if the govt pays <span class="math-container">$(T - G)$</span> - assuming a surplus - to the public with a marginal propensity to consume equal to c, savings (and thus investment) would increase in <span class="math-container">$(1-c)*(T-G)$</span> and not <span class="math-container">$(T - G)$</span> (which is, of course, bigger). Am I losing something here?</p>

CC BY-SA 4.0
2019-05-07T22:54:17.773Z
I think this really needs to be cut down to a single question, and the title needs to be the question, so that people can see exactly what the question is from the title There’s too many embedded questions in the text, and so there’s no easy way to answer them.
Brian Romanchuk
CC BY-SA 4.0
2019-05-08T22:56:09.873Z
Thanks, Brian. I solved the first question by reading a few answers and a text-book but the second one still hangs.
Antônio Gabriel Zeni Landim
CC BY-SA 4.0
2019-05-11T11:59:06.197Z
I don’t understand the question fully, but in general, a federal government surplus takes money out of the pockets of citizens at high speed. How this could increase investment at all seems very unlikely to me.
aliteralmind
<government-debt><investment><fiscal-policy><saving>
How does a govt surplus increases investment?
Antônio Gabriel Zeni Landim
# How does a govt surplus increases investment?

(Asked by: username_0 on 2019-05-05)

From the closed economy equilibrium condition $I = S + (T - G)$, how does exactly a surplus (which I assume would be used for paying debt) increases investment in the same amount? I ask that because if the govt pays $(T - G)$ - assuming a surplus - to the public with a marginal propensity to consume equal to c, savings (and thus investment) would increase in $(1-c)\*(T-G)$ and not $(T - G)$ (which is, of course, bigger). Am I losing something here?

**Tags:** government-debt, investment, fiscal-policy, saving

> **Comments:**
> **username_1**: I think this really needs to be cut down to a single question, and the title needs to be the question, so that people can see exactly what the question is from the title There’s too many embedded questions in the text, and so there’s no easy way to answer them.  
> **username_0**: Thanks, Brian. I solved the first question by reading a few answers and a text-book but the second one still hangs.  
> **username_2**: I don’t understand the question fully, but in general, a federal government surplus takes money out of the pockets of citizens at high speed. How this could increase investment at all seems very unlikely to me.  

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## 1 answers

### Answer by username_3 on 2019-05-09. Score: 1

The increase in savings you described does happen, in the short-run. Remember, tho, investment and savings are flows. Accounting identities provide us truths about their ex-post behavior, not planned or desired savings.

> **Comments:**
> **username_1**: I would add one point: a build up inventories counts as investment. So if we assume that the government raises taxes (for example), the drop in demand could lead to an inventory build up in the short term, hence higher investment.  

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