Answered: 3.5 If real GDP is $300 billion below…

3.5 If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5, then how much would the government need to change taxes to bring the economy to equilibrium at potential?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

3.5

3.4 Suppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion. If the president
and Congress increased government purchases by $500 billion, what would be the result on the
economy?
3.5 If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5, then how much
would the government need to change taxes to bring the economy to equilibrium at potential?
3.6 Explain why the timing of fiscal policy may be more difficult than the timing of monetary policy.

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