A Suppose a Government Decides to Reduce Spending and (Lump-Sum)

question 45

Essay

a. Suppose a government decides to reduce spending and (lump-sum) income taxes by the same amount. Using the long-run model of the economy developed in Chapter 3, graphically illustrate the impact of the equal reductions in spending and taxes. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction curves shift; and v. the terminal equilibrium values.
b. State in words what happens to: i. the real interest rate; ii. national saving; iii. investment; iv.
consumption; and v. output.

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Definitions:

Comparative Balance Sheet

A financial statement that presents the financial position of a company at different points in time, side-by-side, to facilitate comparison.

Plant Assets

Tangible resources that are used in the operations of the business and are not intended for sale to customers.

Disposal Of A Segment

The process of eliminating a division or part of a business, which may involve selling, closing, or spinning off.

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, providing insight into business operations and profitability.