Question
For the Kingdom of Wakanda, which is a closed economy, total output is equal to $30 billion and consumption equals $15 billion. The Wakandan government
For the Kingdom of Wakanda, which is a closed economy, total output is equal to $30 billion and consumption equals $15 billion. The Wakandan government spends $5 billion and has a budget surplus of $1 billion.
1) Find government saving, taxes, private saving and national saving.
2) Suppose now the Wakandan government cuts taxes by $1 billion. Assume that total output, initial consumption, and government spending are as specified previously. Determine the new values of taxes, consumption, government saving, private saving, and national savingif Wakandan consumers save 1/2 of the tax cut and spend the other 1/2.
3)Use the loanable funds market to analyze the situation presented in question 2 (i.e. a tax cut). Graphically illustrate how the loanable funds market changes from the initial equilibrium to a new equilibrium after the tax cut.State whether the interest rate increased or decreased due to the tax cut.
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