a. Suppose a government decides to reduce spending and (lump-sum) income taxes by the same amount. Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of the equal reductions in spending and taxes. Be sure to label: i. the axes ii. the curves iii. the initial equilibrium values iv. the direction curves shift v. the terminal equilibrium values.

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 decides to reduce spending and (lump-sum) income taxes by the same amount. Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of the equal reductions in spending and taxes. Be sure to label: i. the axes   ii. the curves  iii. the initial equilibrium values  iv. the direction curves shift v. the terminal equilibrium values.

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 Decides to Reduce Spending and (Lump-Sum)