Impact of tax on planned investment or the growth in the capital stock

    Suppose that, starting from the initial situation in Part 1, the government cuts net taxes by S50 billion, with no change in government purchases. Assume the tax cut has no supply side effects (it does not affect the supply or demand for labor and has no direct impact on planned investment or the growth in the capital stock). Also assume that initially (i.e., before any change occurs in the interest rate), none of the tax cut is saved (i.e., the tax cut does not change the saving equation itself). However, as you'll see, the final value of saving will be affected, because the tax cut will change the interest rate and that will, in tutu, change total saving.) I. Find the equilibrium values of the same variables you found questions I through 4 in Part I (wlp, L, Y, r, S, f, and C). 2. Check whether Say's Law still holds after the tax cut purchases increase (i.c., check whether total spending is equal to total output) 3. Has there been "complete crowding out" in this example? Explain. 4. How would the tax cut affect your graph in Pad II? Would it be the same? Different? Explain briefly. 5. Consider the following statement: "As economists well know, in the long run, permanently greater government spending or permanently lower taxes will increase total spending in the economy, which in turn will increase output and employment over the long run.- Is this statement true? False? Explain.