Question

Legoland, a closed economy, has a GDP of $900, consumption of $540, where government spends $225 and collects taxes of $180. Calculate

a.Investment

b.Public Savings

c.Private Savings

d.National Savings

Now suppose the new government passes a tax cut of $90. How does your answer to parts a-d above change in each of the scenarios given below?

1.People keep all of the tax cut under their mattress

2.People spend all of the tax cut on Marvel universe paraphernalia

3.People use half the money to buy junk food and cars, and they keep the rest under their pillows

e.What happens to the economy when people spend some of the tax cut? Explain this phenomenon carefully, outlining the implications for the economy.

What is the effect of the tax cut on society in each case 1-3? Calculate your answer.