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Answer the following questions within a Keynesian Cross model. In your answer, make use of economic theory and state clearly any assumptions you...
18. Answer the following questions within a Keynesian Cross model. In your answer, make use of economic theory and state clearly any assumptions you make along the way.
(a) If the household saving rate in the UK was zero, what would be the impact of an increase in government spending?
(b) How does your answer to (a) change if the UK had a large trade deficit with the rest of the world?
(c) How does the answers to (a) and (b) depend on how the UK raises tax revenues? In particular, does it matter whether the UK raises lump sum taxes, or proportional income taxes?
