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Answer :
Answer:
B. S and I drop by ​$0.50 trillion.
Explanation:
In a closed economy we got the following identity
Y = C + I + G
The income is equal to the amount consumed, the amount invested and the goverment spending
12 = 8 + I + 2
I = 2
The investment is equal to the savings of the economy in this case as government and taxes are equal, the public runs at equilibrium
While private sector:
Y - C - T = private savings
12 - 8 - 2 = 2 Private saving
If Government increase government spending by 0.50
The government will run into a deficit making savings decrease as will borrow from the private sector.
This makes the investment decrease as well as savings for the economy as a whole.
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Rewritten by : Jeany
