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.

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

Section: Chapter Questions

Problem 7PA

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Question

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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