At a given level of GDP the government decides to increase its transfer payments to domestic households (TR) by $10000 while cutting its purchase of consumption goods and services (G) by $10000 at the same time.
(a) Explain whether national saving would increase, or decrease, or change ambiguously, or remain unchanged as a result of the increase in transfer payments (TR).
(b) Explain whether national saving would increase, or decrease, or change ambiguously, or remain unchanged as a result of the decrease in government expenditure (G).
(c) What is the aggregate effect of this fiscal policy package (i.e., TR↑ and G↓) on (i) private saving? (ii) public saving? (iii) national saving?