Question

Consider the following equation:

Hint:

National savings is calculated as \(S=Y-C-G\). If income and consumption remain unchanged, a decrease in government expenditure increases national savings by the same amount.

Answer 1

Correct Answer: 250

Step 1: Recall national saving.
\[ S=Y-C-G \]

Step 2: Find disposable income and consumption.
With $Y=5000$ and $T=1000$, disposable income is $4000$. Then
\[ C=250+0.75(4000)=3250 \]

Step 3: Saving at the old G.
With $G=1000$,
\[ S_1=5000-3250-1000=750 \]

Step 4: Saving at the new G.
With $G=750$ and the same $C$,
\[ S_2=5000-3250-750=1000 \]

Step 5: Take the rise.
\[ S_2-S_1=1000-750=250 \]
\[ \boxed{250} \]