Suppose that the government increases taxes and government purchases by equal amounts. What happens to the interest rate and investment in response to this balanced-budget change? Explain how your answer depends on the marginal propensity to consume study

Explained

Explanation:

interest rates will increase at a high rate in response to this balanced-budget change ... !

because interest rate depends upon economic trend as according to marginal propensity to consume. increase in personal consumer spending (consumption) occurs with an increase in disposable income (income after taxes and transfers) and the same will work in vice-versa.!