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

question 37

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
v. the terminal equilibrium values.

b. State in words what happens to:
i. the real interest rate
ii. national saving
iii. investment.
iv. consumption
v. output.

---

Definitions:

Physical Strength

The measure of an individual's exertion capacity in terms of muscle performance and endurance.

Job Significance

The perceived importance of a job's impact on the company or society by the job holder.

Labour Standards

Established benchmarks or criteria for measuring the productivity, efficiency, and performance of labor within an organization or industry.

Assembly Lines

A manufacturing process in which parts are added to a product in a sequential manner to create a finished product in the most efficient way.