1. Help, please provides steps or explanation thanks!!!!
3. (30 points) Analyze the effects of each of the following on national saving, investment, and
the real interest rate. Explain your reasoning and illustrate it with an appropriate diagram. (a)
Consumer confidence falls, so consumers decide to consume less and save more at every level of
the real interest rate. (b) The government introduces an investment tax credit (offset by other
types of taxes, so total tax collections remain unchanged)
Solution
a> If the consumption demand is reduced , there will be less of demand in the economy and this
will be a drag on the growth of the economy. If the money saved by the consumers goes into
investments , then there is a compensating effect on the GDP growth. But if the investment
doesn't happen , the economy will move into depression.
b>This will increase the investment in the economy and will lead to higher economic growth.