Incorporate government transfer payments tr explicitly

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Reference no: EM13669014

Let us incorporate government transfer payments TR explicitly into the model. Suppose these payments are determined independently of income: they are exogenous and fixed. These represent payments by the government that augment the disposable income of individuals; the relevant expression for disposable income thus becomes
YD = TR + (1 - t) Y.
Incorporate this modified definition of YD into the private savings function, and identify explicitly the impact of a change in TR on private savings.

Reference no: EM13669014

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