Please answer part 4 only Suppose a government decides to pass a tax cut, while keeping the level of government spending the same.How can the government finance the tax cut? What is the impact of the tax cut on public saving? Will private saving be affected and, if so, how? If households save most of (but not all) the tax cut, how will this affect investment? How will this affect the equilibrium interest rate? and why?

Aggregate demand refers to the amount of the sales proceeds which an entrepreneur actually expects…

Answered: Please answer part 4 only Suppose a…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 9PA

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Please answer part 4 only

Suppose a government decides to pass a tax cut, while keeping the level of government spending the same.
1. How can the government finance the tax cut?
2. What is the impact of the tax cut on public saving?
3. Will private saving be affected and, if so, how?
4. If households save most of (but not all) the tax cut, how will this affect investment? How will this affect the equilibrium interest rate? and why?

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