Suppose the Biden administration permanently increases government purchases. (You should assume that the economy is at Y* before the increase.) a. What will be the impact on the economy’s normal real interest rate (r*) and normal investment (I*)? Explain with the help the long-run savings and investment diagram

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Public Saving

Public saving deals with the amount which has been in excess after meeting all the obligatory expenses and investment of the government. Taxes are collected by the government to meet its day-to-day expenditures. The obligatory expenses include all those expenses which are mandatory for the government. It cannot be avoided as it is inevitable.