Final answer:
Higher taxes will initially decrease consumption and private saving, increase public saving, and may reduce investment. National saving could increase or decrease. Equilibrium will shift, requiring a calculation of all components to determine the new level.
Step-by-step explanation:
When the government raises taxes by $100 billion and the marginal propensity to consume (MPC) is 0.6, the initial decrease in consumption will be $60 billion. Since consumers are now spending less, this reduction in consumption will lead to a decrease in private saving.
On the other side, public saving will increase as a result of higher taxes. The national saving, which is the sum of private and public saving, might either increase or decrease depending on the relative magnitudes of the change in private and public saving.
Lastly, investment (I) could potentially decrease in the short run due to the decrease in consumption leading to lower income and thus lower saving, which is the source of funds for investment.
Coming to the equilibrium, it is determined by the point where aggregate demand equals aggregate supply (AD = Y) in an economy. The aggregate demand consists of consumption (C), investment (I), government spending (G), and net exports (exports minus imports).
Changes in taxes and government spending can shift this equilibrium. For a detailed analysis, we would need to apply the formulas given for consumption and other variables and solve for equilibrium level of output and its respective components.