3. Suppose, GDP = $24 trillion, C = $15 trillion, G = $6 trillion, and Budget deficit = $1.2 trillion. The economists also estimate that the investment function is: I=3.6-0.1r Where r is the country's real interest rate, expressed as a percentage. a) Find public saving, net taxes, private saving, national saving, investment, and equilibrium interest rate. b) Government cuts taxes by $600 billion. Find new budget deficit and answers to A. if: i) Consumers save the entire tax cut ii) Consumers save 1/4 and spend the other 3/4 of the tax cut

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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.