In the neoclassical model with fixed income, if there is a decrease in taxes with no change in government spending, then public saving ______ and private saving ______.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; does not change

Question

Quizplus · Accepted Answer

In the neoclassical model with fixed income, a decrease in taxes, with no change in government spending, leads to a decrease in public saving because the government's budget deficit increases. However, private saving increases because individuals have more disposable income to save.

In the Neoclassical Model with Fixed Income, If There Is