Assuming full employment, if the private sector saves 8 percent of its income and the government raises taxes by $500 to finance public investments, total investment will increase by $460.

Question

Quizplus · Accepted Answer

The increase in government investment is $500, and the decrease in private investment is $40 (0.08 * $500). So, the net increase in investment is $460.

Assuming Full Employment, If the Private Sector Saves 8 Percent