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.

---

Definitions:

Shareholder Models

Refer to theoretical frameworks that describe how shareholders interact with and influence corporate governance and decision-making processes.

Corporate Governance

Systems, principles, and processes by which a company is directed and controlled, focusing on the relationship among various stakeholders, including shareholders and the board of directors.

Stakeholder Interaction Model

A framework for analyzing how an organization interacts with and responds to the needs of those individuals or groups that have an interest in its activities.

Primary Stakeholders

Individuals or groups with a direct interest or stake in the outcome of a project, decision, or policy, such as employees, customers, and investors.