a. Suppose a government moves to reduce a budget deficit. Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of reducing a government's budget deficit by increasing (lump-sum) taxes on household income. Be sure to label: i. the axes ii. the curves iii. the inifial equilibrium values iv. the direction curves shiff v. the terminal equilibriom valnes.

b. State in words what happens to: i. the real interest rate ii. national saving iii. investment iv. consumption v. output.

Question

b. State in words what happens to:  i. the real interest rate ii. national saving  iii. investment iv. consumption v. output.

Quizplus · Accepted Answer

The Answer of a. Suppose a government moves to reduce a budget deficit. Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of reducing a government's budget deficit by increasing (lump-sum) taxes on household income. Be sure to label:  i. the axes ii. the curves  iii. the inifial equilibrium values  iv. the direction curves shiff v. the terminal equilibriom valnes.

b. State in words what happens to:  i. the real interest rate ii. national saving  iii. investment iv. consumption v. output.

A Suppose a Government Moves to Reduce a Budget Deficit