Use a Saving-Investment Diagram to Explain What Happens to Saving,investment,and

question 60

Essay

Use a saving-investment diagram to explain what happens to saving,investment,and the real interest rate in each of the following scenarios.
a.Current output rises due to a temporary productivity increase.
b.The tax code changes so that business firms face higher tax rates on their revenue (offset by other lump-sum tax changes so there is no overall change in tax revenue).
c.The government increases spending temporarily for a one-year project to turn mercury into gold.
d.The average educational level rises,inducing an increase in the future marginal productivity of capital.

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Definitions:

Unusually Low

Pertains to a value or level that is significantly below what is considered normal or typical.

Higher

At an elevated level in terms of quality, amount, or degree compared to something else.

Illusory Correlation

The false perception of a relationship between two variables that are either weakly correlated or not correlated at all.

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