Explain Why Saving Plus Taxes Must Equal Investment Plus Government

question 47

Essay

Explain why saving plus taxes must equal investment plus government spending in equilibrium.

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Definitions:

Law of Increasing Cost

The principle that as production of a good expands, the opportunity cost of producing an additional unit rises.

Marginal Output

Marginal Output is the additional quantity of output that is produced by utilizing one more unit of a certain input, holding all other inputs constant, used to assess productivity improvements or decreases.

Diseconomies of Scale

Diseconomies of scale occur when a company or business grows so large that the costs per unit increase, opposite of economies of scale where costs decrease with increasing production.

Economic Growth

A rise in the output of goods and services within an economy over a specific time frame.