Assume the economy's marginal propensity to consume is 0.8. Suppose that businesses decrease autonomous investment. To avoid a recession, the government decreases autonomous tax of $5 billion such that total demand (C+I+G) remains unchanged (that is, AT = -5). How much did autonomous investment decrease? a. $4 billion b. $5 billion c. $8 billion d. $20 billion e. $25 billion

Assume the economy's marginal propensity to consume is 0.8. Suppose that businesses decrease autonomous investment. To avoid a recession, the government decreases autonomous tax of $5 billion such that total demand (C+I+G) remains unchanged (that is, AT = -5). How much did autonomous investment decrease? a. $4 billion b. $5 billion c. $8 billion d. $20 billion e. $25 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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Question

Economics
*assume a closed economy in a deep recession
with exogenous investment (1), exogenous taxes
(T), exogenous government spending (G), and
AC = mpc * (AY-AT).
Assume the economy's marginal propensity to consume is 0.8. Suppose that
businesses decrease autonomous investment. To avoid a recession, the government
decreases autonomous tax of $5 billion such that total demand (C+I+G) remains
unchanged (that is, AT = -5). How much did autonomous investment decrease?
а.
$4 billion
b. $5 billion
c. $8 billion
d. $20 billion
e. $25 billion

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