Question
Suppose the U.S. has a closed economy with GDP (Y) equal to $20.0 trillion, consumption (C) equal to $11.0 trillion, government spending (G) equal to
Suppose the U.S. has a closed economy with GDP (Y) equal to $20.0 trillion, consumption (C) equal to $11.0 trillion, government spending (G) equal to $3.9 trillion, transfer payments (TR) equal to $1.1 trillion, and taxes (T) equal to $3.8 trillion. Suppose the government passes legislation to reduce the size of its debt by reducing government spending by $0.5 trillion. What must happen to total savings (S)? That is, what is the dollar amount by which total savings changes? Assume the values for GDP, consumption, taxes, and transfer payments do not change.
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