Consider an decrease in government purchases of goods and services and current taxes are reduced by the same amount as the decrease in government spending.

a) (6 points) This change leads to Answer

in desired national saving and Answer

the equilibrium real interest rate.

b) (8 points) In an economy where consumers have a higher marginal propensity to consume, the stated policy change leads to a Answer

change in desired national saving and the resulting equilibrium real interest rate is Answer

than the one you found in part (a)