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Rato's recommendation to the U.S. government to institute a contractionary fiscal policy by increasing taxes. We will analyze the effects of Mr. Rato's call for a tax increase would have on government revenue by looking at the U.S. current account through the accounting identity which relates the current account and the government budget. It states: CA = Sp ? Ip + (T-Cg-Ig) and portrays the current account as the difference between a nation's saving and its investment. We will develop this analysis later on in the paper. In addition, with this contractionary fiscal policy we have the condition where, ceteris paribus, a rise in taxes will reduce the level of aggregate demand and economic activity through changes in the components of AD...
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Common topics in this essay:
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