Suppose that a conservative government reduces both government spendings and taxes.

a) What is the long-run impact of this policy on private savings, public savings and national savings given the spendings and taxes are reduced by the same amount?

b) Use the model of loanable funds to determine what is the impact of such policies on savings, investments and real interest rate

c) Explain how the size of these changes from the point b) depend on the marginal propensity to consume.