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When the savings rate is 1/3, what is the fiscal multiplier (you can ignore taxes)? What is the multiplier when the savings rate is 1/5?

  1. When the savings rate is 1/3, what is the fiscal multiplier (you can ignore taxes)? What is the multiplier when the savings rate is 1/5? Explain what this means for an increase in government spending (G).
  2. In general, how does an increase in savings affect the effectiveness of fiscal policy and the recovery?
  3. What are the opportunities and threats?

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