Please answer part 4 only Suppose a government decides to pass a tax cut, while keeping the level of government spending the same. How can the government finance the tax cut? What is the impact of the tax cut on public saving? Will private saving be affected and, if so, how? If households save most of (but not all) the tax cut, how will this affect investment? How will this affect the equilibrium interest rate? and why?
Please answer part 4 only Suppose a government decides to pass a tax cut, while keeping the level of government spending the same. How can the government finance the tax cut? What is the impact of the tax cut on public saving? Will private saving be affected and, if so, how? If households save most of (but not all) the tax cut, how will this affect investment? How will this affect the equilibrium interest rate? and why?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please answer part 4 only
- Suppose a government decides to pass a tax cut, while keeping the level of government spending the same.
- How can the government finance the tax cut?
- What is the impact of the tax cut on
public saving ? - Will private saving be affected and, if so, how?
- If households save most of (but not all) the tax cut, how will this affect investment? How will this affect the equilibrium interest rate? and why?
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