Respuesta :
Answer:
(b) Increases by $100 billion.
(b) Decreases by $40 billion.
Explanation:
Given that,
Taxes rises by the government = $100 billion
Marginal propensity to consume, MPC = 0.6
(a) Public savings refers to the savings that is done by the government. It is calculated as the difference between government spending and taxes collected by the government.
Government spending = $0
So, the public savings increases by $100 billion.
(b) Private savings refers to the savings that is done by the households.
Change in consumption(Falls):
= MPC × Increase in taxes
= 0.6 × $100 billion
= $60 billion
Private savings:
= Income - Taxes - Consumption
= $0 - $100 billion - (-$60 billion)
= -$100 billion + $60 billion
= - $40 billion
Therefore, the private savings decreases by $40 billion.
