1) Would an increase in government spending by $160 billion be sufficient to accomplish its goal? How much is required to close the negative GDP gap? 2) Suppose Bank A, which faces a required

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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The government wishes to close the
negative GDP gap by reducing real GDP by
$900 billion. The MPC = 0.80. The
government subscribes to Keynesian
economics and want to implement an
expansionary fiscal policy to increase
aggregate demand.
(1) Would an increase in government spending by
$160 billion be sufficient to accomplish its goal?
How much is required to close the negative GDP
gар?
(2) Suppose Bank A, which faces a required
reserve ratio of 16%, receives a $135,000 deposit
from a customer. Using the Simple Money
Multiplier (SMM), calculate the theoretical change
in money supply. Assume banks hold no excess
reserves.
Transcribed Image Text:The government wishes to close the negative GDP gap by reducing real GDP by $900 billion. The MPC = 0.80. The government subscribes to Keynesian economics and want to implement an expansionary fiscal policy to increase aggregate demand. (1) Would an increase in government spending by $160 billion be sufficient to accomplish its goal? How much is required to close the negative GDP gар? (2) Suppose Bank A, which faces a required reserve ratio of 16%, receives a $135,000 deposit from a customer. Using the Simple Money Multiplier (SMM), calculate the theoretical change in money supply. Assume banks hold no excess reserves.
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