The country of FARAWAY is a closed economy.
FARAWAY ’s national saving (NS) and investment (I) are given by the following equations:

where r is the real interest rate.
Assume the government of FARAWAY reduces the budget surplus by 5.
Which of the following effects will occur?

Question

The country of  FARAWAY  is a closed economy.   
 FARAWAY ’s national saving (NS) and investment (I) are given by the following equations: 
 
    where  r  is the real interest rate. 
  Assume the government of  FARAWAY   reduces the budget surplus by 5.  
 Which of the following effects will occur?

Accepted Answer

Decrease in national saving, rise in real interest rate.

Answer

Increase in national saving, fall in investment.

Answer

Increase in investment, rise in the real interest rate.

Answer

Decrease in national saving, rise in investment.

Answer

Increase in investment, fall in the real interest rate.

Crowdly

The country of FARAWAY is a closed economy. FARAWAY ’s national saving (N...

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