Question
Consider a closed economy where all markets clear and the government is running a budget surplus. Assume that the marginal propensity to consume is 0.8.
Consider a closed economy where all markets clear and the government is running a budget surplus. Assume that the marginal propensity to consume is 0.8. The economy's output increases by $10 billion (due to technological progress), the tax revenue increases by $4 billion, and the government budget surplus increases by $1 billion.
(a) Calculate the dollar change in government spending.
(b) Calculate the dollar change in public saving.
(c) Calculate the dollar change in disposable income.
(d) Calculate the dollar change in consumption.
(e) Calculate the dollar change in private saving.
(f) Calculate the dollar change in national saving.
(g) Does the equilibrium real interest rate increase, decrease, or stay the same?
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