Question

In the neoclassical model with fixed income, if there is a decrease in taxes with no change in government spending, then public saving ______ and private saving ______. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; does not change

Answer 1

Option B is incorrect, which is increases; does not change

In the neoclassical model with fixed income, if there is a decrease in taxes with no change in government spending, then public saving increases and private saving does not change.

Explanation:

Neoclassical economy, as the motive for the manufacturing, pricing, and supply of goods and facilities, is a wide theory that concentrates on demand and supply.

Expenditure in substitution and net expenditure can be separated. While the aim of reducing the accumulation of depreciated capital is to substitute it, net investment determines shifts in capital stocks.

The long-term stability of the capital stock needs net investment. The neoclassical theory of investing presupposes that companies invest when they have a smaller share of their original capital than their ideal stock. In the event that their current equity stock is greater than the optimum equity stock, companies are dis-investing vice versa.