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What are your predictions for the economy of Thriftypeg based on the following policy scenario: Suppose the government decides to increase taxes. What happens to total output, disposable income, consumption, public saving, private saving, and national saving? (Hints: (1) Assume Ricardian Equivalence does not hold, (2) Assume households consume a constant fraction (MPC) of current income in the current period (where MPC is defined as the marginal propensity to consume out of income and is between 0 and 1).

Microeconomics, Economics

  • Category:- Microeconomics
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