Question

The U.S. government has shut down a number of times in recent history. Explain how a government shutdown will affect the variables in the national investment and savings identity. Could the shutdown affect the government budget deficit?

Short answer

Budget deficit would be reduced.

Step-by-step solution

Concept Introduction  

The budget balanceis the values of government revenue and spending. When spending is higher than earning, the budger is said to be in deficit. When the earning of the government i higher than expenses incurred, budget is said to be in surplus.

Explanation of Solution 

When the government shuts down, the spending reduces. The general effect are going to be an improvement in budget balance. The decrease in interest rate would cause the investment to improve. This would further boost exports and thus improve trade balance.