3. Consider a Simple Keynesian Model for a closed economy with government. Suppose there does not exist any public sector enterprise in the economy. Income earners are divided into two groups, Group 1 and Group 2, such that the saving propensity of the former is less than that of the latter. Aggregate planned investment is an increasing function of GDP (Y). Start with an initial equilibrium situation. Now, suppose the government imposes and collects additional taxes from Group 1 and uses the tax revenue so generated to make transfer payments to Group 2. Following this: (a) aggregate saving in the economy remains unchanged. (b) aggregate saving in the economy declines. (c) aggregate saving in the economy rises. (d) aggregate saving in the economy may change either way.

3. Consider a Simple Keynesian Model for a closed economy with government. Suppose there does not exist any public sector enterprise in the economy. Income earners are divided into two groups, Group 1 and Group 2, such that the saving propensity of the former is less than that of the latter. Aggregate planned investment is an increasing function of GDP (Y). Start with an initial equilibrium situation. Now, suppose the government imposes and collects additional taxes from Group 1 and uses the tax revenue so generated to make transfer payments to Group 2. Following this: (a) aggregate saving in the economy remains unchanged. (b) aggregate saving in the economy declines. (c) aggregate saving in the economy rises. (d) aggregate saving in the economy may change either way.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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