3. deficits. The federal government in the United States has been running large budget (a) Use the loanable funds approach to show the effect of the U.S. budget deficit on the world real interest rate, holding everything else constant. (b) Now suppose that households believe that deficits will be financed by higher taxes in the near future, and households increase their saving in anticipa- tion of paying those higher taxes. Briefly explain how your analysis in part (a) will be affected.
3. deficits. The federal government in the United States has been running large budget (a) Use the loanable funds approach to show the effect of the U.S. budget deficit on the world real interest rate, holding everything else constant. (b) Now suppose that households believe that deficits will be financed by higher taxes in the near future, and households increase their saving in anticipa- tion of paying those higher taxes. Briefly explain how your analysis in part (a) will be affected.
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter8: Savings,investment And The Financial System
Section: Chapter Questions
Problem 8PA
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