Economyst,

My prof says only a was right at 100 billion, but b, c, and d were wrong??
I appreciate the help anyway cause she was on vacation. I have posted the answers she got....

2. The goverment raises taxes by $100 billion. If the marginal propensity to consume is 0.6, what happens to the following? Do they rise or fall? By what amounts?

a. Public saving

b. Private saving

c. National saving

d. Investment

======================================
b. she says it falls by 40 billion.
AND that c and d both are +60billion...

Dont know who was right, because I got something different also??? Its for an online course and I cannot submit a question as to how she got the answer?

Your prof's answers are initial responses to the change from taxes. With a $100B increase in taxes, INITIALLY, 60B would come out of consumption and 40B out of savings-- b) private savings falls by $40B.

c) National savings is sum of public+private savings = +100B-40B = 60B.

I do have a problem with the prof's answer to d)=+60 The macro-economic literature generally treats Investment (i) as private investment. Government spending is a different animal altogether. For investment to go up by $60, investment must include government spending. Only then would investment = public+private savings.

That said, I have no apologies. I stand by my original answer. A change in taxes will have ripple effects throughout the national economy. -- Which is not being accounted for by your prof. Since there was no mention of what happens to government spending as a result of the tax increase, I assumed that it would be zero. (Which is typical in these initial first-semester macro-economic problems).

Note that even if I assumed the government spent all of the increased tax revenue, I still would not get your prof's answers. Your prof's answers only are initial changes, not final changes.