Use Prodcution possibility frontier to illustrate the results of fiscal policy & how much consumption, investment & savings will change?
The Situation: Full employment income is estimated to be $11,000. The current interest rate is estimated to be 4.178 [irrcent. While last year total business investment spending was $900; the rising price of oil has caused expectations to deteriorate (see diagrammatic estimate). The year's federal budget is G=2000 and T=1000. The consumption function is estimated to be: C=500 + 0.75.YD. The Problem: Assessing the Results
Use a production possibility frontier to illustrate the probable results of your fiscal policy. By how much did consumption change? By how much did savings change? Explain how much did investment change also illustrate what is the total amount of government borrowing? Where did the money come from?