Consider an exogenous reduction of public saving of 1 percent and investigate how this change affects the macroeconomic equilibrium in the case in which the saving function is sensitive to changes in the interest rate.
· Why could the saving function be sensitive to interest rate changes? Listing at least one reason why this might be the case.
· Compare the outcomes in the two cases for private saving, the government budget, national saving, investment, and the equilibrium interest rate.
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