In: Economics
Consider a nation with a marginal propensity to consume of 0.75.
a.
What will its marginal propensity to
save
be?
b.
What would happen to its consumption (give the direction and size of the effect) if
taxes (T) were to increase by 100, assuming th
at real aggregate income is
unaffected? What would happen to private saving? To public saving? To national
saving?
c.
Suppose, instead, that government purchases (G) increase by 100 while taxes
remain unchanged. Assuming that aggregate income is unaffected,
what would
happen to consumption? What would happen to private saving? To public saving?
To national saving?