Assume that a hypothetical economy with an MPC of 0.8 is experiencing a severe recession. Instructions: In part a, round your answers to 1 decimal place. Enter your answers as a positive number. In part b, enter your answers as a whole number. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $25 billion? billion How large a tax cut would be needed to achieve the same increase in aggregate demand? Tax cut = $ billion b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt. Increase government spending by $ billion Increase taxes by $ billion

Assume that a hypothetical economy with an MPC of 0.8 is experiencing a severe recession. Instructions: In part a, round your answers to 1 decimal place. Enter your answers as a positive number. In part b, enter your answers as a whole number. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $25 billion? billion How large a tax cut would be needed to achieve the same increase in aggregate demand? Tax cut = $ billion b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt. Increase government spending by $ billion Increase taxes by $ billion

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume that a hypothetical economy with an MPC of .8 is experiencing severe recession. By how much would government spending have to increase to shift the aggregate demand curve rightward by $25 billion? How large a tax cut would be needed to achieve the same increase in aggregate demand? Why the difference? Determine one possible combination of government spending increases and tax decreases that would accomplish the same goal.
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