In the 1960s the U.S entered the Vietnam War, and military expenditures (part of government expenditures) grew from an annual rate of $113 billion to 138 billion. The economy was near full-employment and, therefore, given there was no offsetting tax increase, inflation pressures emerged. Assume the MPC is .75 A) How did the increase in military expenditures affect AD? B) If in 1968 the AD Excess was $150 billion, what change in government expenditures would you have recommended?
In the 1960s the U.S entered the Vietnam War, and military expenditures (part of government expenditures) grew from an annual rate of $113 billion to 138 billion. The economy was near full-employment and, therefore, given there was no offsetting tax increase, inflation pressures emerged. Assume the MPC is .75 A) How did the increase in military expenditures affect AD? B) If in 1968 the AD Excess was $150 billion, what change in government expenditures would you have recommended?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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In the 1960s the U.S entered the Vietnam War, and military expenditures (part of government expenditures) grew from an annual rate of $113 billion to 138 billion. The economy was near full-employment and, therefore, given there was no offsetting tax increase, inflation pressures emerged. Assume the MPC is .75
A) How did the increase in military expenditures affect AD?
B) If in 1968 the AD Excess was $150 billion, what change in government expenditures would you have recommended?
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