Question

The Current U.S. government spending is $4.746 trillion. That's the federal budget
for fiscal year 2020 covering October 1, 2019, to September 30, 2020. It's 21% of gross
domestic product. That means that Government Spending in the United States has
increased under the current U.S. Administration. Additionally, last year the Congress
passed a tax reform that, among other effects, cut payroll taxes:

i) Can you establish the macroeconomics effects of these policies on consumption,
investment, interest rate and savings? Use the models (consumption model and loanable
funds market) and the graphs. Explain.

Answer 1

These policies will increase aggregate demand, as a result consumption and investment will increase, the demand for loanable funds will increase, so the interest rate will increase, and savings will increase.