4. Assume the government cuts taxes and the marginal propensity to save is 0.4. a. Would this be considered expansionary fiscal policy or contractionary fiscal policy? b. If the tax cut was $1 billion, what would be the effect on real GDP? (Show your work.)

4. Assume the government cuts taxes and the marginal propensity to save is 0.4. a. Would this be considered expansionary fiscal policy or contractionary fiscal policy? b. If the tax cut was $1 billion, what would be the effect on real GDP? (Show your work.)

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

4. Assume the government cuts taxes and the marginal propensity to save is 0.4.
a. Would this be considered expansionary fiscal policy or contractionary fiscal
policy?
b. If the tax cut was $1 billion, what would be the effect on real GDP? (Show
your work.)

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