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1. Suppose in a closed economy, its national income or GDP (Y) and government spending (G) is fixed in a given year. Marginal propensity to
1. Suppose in a closed economy, its national income or GDP (Y) and government spending (G) is fixed in a given year. Marginal propensity to consume (MPC) is 0.70. Now the government raises taxes (T) by $100 billion. What would happen to the following? Do they rise or fall? By how much? Note: the values of Y and G are constant in this question. For full credit, you need to show details of your solutions for the following questions.
a. Public saving ___? b. Private saving ___? c. National saving ___? d. Investment ___?
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