Increase in government spending decreases public savings

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We saw that a $10 Billion increase in government spending decreases public savings and therefore reduces national savings, and will reduce equilibrium private investment and increase interest rates as well. A $10 Billion tax cut will decrease government savings as well. Why would we expect the $10 Billion tax cut to have less impact on private investment and interest rates than a $10 Billion increase in government spending? Would it have any impact at all? Why or why not? Use the Loanable Funds model in formulating your reply.

Reference no: EM131006125

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