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?

Answered: Suppose a government decides to pass a…

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter18: The Keynesian Model

Section: Chapter Questions

Problem 6SQP

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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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Taxes are involuntary taxes levied on individuals or companies and imposed by a government agency to fund government operations, whether local, regional or national.

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