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Government increases taxes and government expenditure

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Reference no: EM133398762

Suppose that the government increases taxes and government expenditure by equal amounts.

1. Derive an equation that shows the relationship between national, private and public savings to explain what happen to the interest rate and investment in response to this balanced-budget change.

2. Explain how your answer depends on the marginal propensity,? to consume.

Reference no: EM133398762

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