Assume that a hypothetical economy with an MPC of 0.75 is experiencing severe recession. By how much would government spending have to rise to shift the aggregate demand curve rightward by $35 billion? How large a tax cut would be needed to achieve the same increase in aggregate demand? Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt.

Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand
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6. Assume that a hypothetical economy with an MPC of 0.75 is experiencing severe recession. By how much would government
spending have to rise to shift the aggregate demand curve rightward by $35 billion? How large a tax cut would be needed to achieve
the same increase in aggregate demand? Determine one possible combination of government spending increases and tax increases
that would accomplish the same goal without changing the amount of outstanding debt.
Transcribed Image Text:6. Assume that a hypothetical economy with an MPC of 0.75 is experiencing severe recession. By how much would government spending have to rise to shift the aggregate demand curve rightward by $35 billion? How large a tax cut would be needed to achieve the same increase in aggregate demand? Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt.
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