Consider an economy with a marginal propensity to consume of 0.75. a. What would its marginal propensity to save be? b. What would happen to consumption (give the direction and size of the effect) if income taxes (T) were to increase by 100 , assuming that real aggregate income is unaffected? What would happen to private saving? To public saving? To national saving? c. Suppose, instead, that government purchases (G) increase by 100. Assuming that aggregate income is unaffected, what would happen to consumption (give the direction and size of the effect)? What would happen to private saving? To public saving? To national saving?
