Fiscal policy and investment. Read Focus Box Deficit Reduction: Good or Bad for Investment? In each case
Question:
Fiscal policy and investment. Read Focus Box “Deficit Reduction: Good or Bad for Investment?”
In each case below, there is a fiscal consolidation. Remember that equilibrium condition in good markets can also be written
a. How does this fiscal consolidation increase public saving?
Calculate the change in public saving and the change in private saving? What must happen to the target interest rate for this policy to describe the changes in parts a, b, and c?
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