Answer to Question #148642 in Macroeconomics for Saqib Saleem

Question

Imagine that the government starts with a balanced budget and then because of the increase in taxes start running a budget surplus.Graphically analyze the effects of budget surplus on interest rate,saving and investment.if loanable funds means the flow of resources available from private saving

Answer 1

An increase in tax reduces personal purchasing income resulting to a decrease in demand. The aggregate demand curve decreases and moves to the left side.

The aggregate supply increases causing the curve to move rightward side.