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Principles of Economics- Mankiw (5th) 551

Principles of Economics- Mankiw (5th) 551 - CHAPTER 25 S AV...

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CHAPTER 25 SAVING, INVESTMENT, AND THE FINANCIAL SYSTEM 569 billion to $1,600 billion. That is, the shift in the supply curve moves the market equilibrium along the demand curve. With a lower cost of borrowing, households and firms are motivated to borrow more to finance greater investment. Thus, if a change in the tax laws encouraged greater saving, the result would be lower interest rates and greater investment. Although this analysis of the effects of increased saving is widely accepted among economists, there is less consensus about what kinds of tax changes should be enacted. Many economists endorse tax reform aimed at increasing saving in or- der to stimulate investment and growth. Yet others are skeptical that these tax changes would have much effect on national saving. These skeptics also doubt the equity of the proposed reforms. They argue that, in many cases, the benefits of the tax changes would accrue primarily to the wealthy, who are least in need of tax re- lief. We examine this debate more fully in the final chapter of this book.
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