### Economic Analysis: Fiscal Policy and Output Gap**Scenario Overview:**An economy is currently operating with an output deficit of $50 million below its natural output level. To address this recessionary gap, fiscal policymakers are considering interventions. The central bank plans to adjust the money supply to maintain constant interest rates, effectively preventing any crowding out. In this scenario, the marginal propensity to consume (MPC) is 0.75, and the price level remains completely fixed in the short term.**Key Questions for Consideration:**3. **Government Spending Adjustment:** - What amount of government spending adjustment is necessary to restore the economy to full employment? (Note: Indicate a decrease with a negative number if applicable.)4. **Taxation Adjustment:** - What adjustment in taxation is required to achieve full employment in the economy? (Note: Indicate a decrease with a negative number if applicable.)This analysis explores the necessary fiscal policy measures to bridge the output gap and achieve economic stability. Understanding the relationship between government spending, taxation, and the marginal propensity to consume is crucial for effective policy decisions.

here we calculate the how much government spending affect economy and need of tax by using the…

An economy is operating with output $50,000,000 below the natural rate of output. Fiscal policy makers want to close this recessionar gap. The central bank agrees to adjust the money supply to keep the interest rate constant, so there will be no crowding out. The marginal propensity to consume is 0.75, and the price level is

An economy is operating with output $50,000,000 below the natural rate of output. Fiscal policy makers want to close this recessionar gap. The central bank agrees to adjust the money supply to keep the interest rate constant, so there will be no crowding out. The marginal propensity to consume is 0.75, and the price level is

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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