Problem: A) Assume that real GDP of a hypothetical economy in Year 1 is $2000 and rate of unemployment is increasing every year. Policy makers believe that if the real GDP is $3000 in Year 2 full employment would be accomplished. If mpc is 0.75: By how much should government expenditure increase if full employment is going to be achieved by Year 2? B) If the government decides to lower taxes to achieve full employment by Year 2, by how much should government taxes be reduced?

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
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Problem:
A) Assume that real GDP of a hypothetical economy in Year 1 is $2000 and
rate of unemployment is increasing every year. Policy makers believe that
if the real GDP is $3000 in Year 2 full employment would be accomplished.
If mpc is 0.75: By how much should government expenditure increase if
full employment is going to be achieved by Year 2?
B) If the government decides to lower taxes to achieve full employment by
Year 2, by how much should government taxes be reduced?
Transcribed Image Text:Problem: A) Assume that real GDP of a hypothetical economy in Year 1 is $2000 and rate of unemployment is increasing every year. Policy makers believe that if the real GDP is $3000 in Year 2 full employment would be accomplished. If mpc is 0.75: By how much should government expenditure increase if full employment is going to be achieved by Year 2? B) If the government decides to lower taxes to achieve full employment by Year 2, by how much should government taxes be reduced?
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