Final answer:
When the government raises lump-sum taxes by $100 billion and the marginal propensity to consume is 0.6, consumers reduce their consumption by $60 billion. However, this reduced consumption also entails a reduced saving by the same amount, since they aren't saving this portion of the income anymore. Therefore, national saving falls by $60 billion.
Step-by-step explanation:
The question posed asks about the impact of a $100 billion lump-sum tax increase on national saving, given a marginal propensity to consume (MPC) of 0.6 in a neoclassical economy where output remains unchanged. To determine the effect on national saving, we must consider both the increase in taxes and the behavioral response of consumers given their propensity to consume.
When the government raises taxes by $100 billion, disposable income for consumers decreases by this amount. However, because individuals have a marginal propensity to consume of 0.6, they would decrease their consumption by 60% of the tax increase, so by $60 billion. The rest, which is 40% or $40 billion, would be the reduction in what they save. Therefore, the rise in tax reduces national saving, because the amount saved out of the additional tax revenue is less than the reduction in private saving.
As a result, the correct answer to the student's question that asks how national saving is affected by a $100 billion increase in lump-sum taxes with a marginal propensity to consume of 0.6 is that national saving falls by $60 billion.