Suppose that the economy is experiencing a recession with an estimated recessionary gap of $15 billion. Congress is considering the use of fiscal policy to ease the recession, but due to current political sentiments, it has determined that the maximum spending increase the government is willing to support is $2 billion. It wants to make up the remainder of the recessionary gap using tax cuts. If a spending increase of $2 billion is approved and the MPC is 0.8, by how much will taxes need to be reduced to close the remainder of the recessionary gap? Instructions: Round your answer to 2 decimal places. 5O billion

Suppose that the economy is experiencing a recession with an estimated recessionary gap of $15 billion. Congress is considering the use of fiscal policy to ease the recession, but due to current political sentiments, it has determined that the maximum spending increase the government is willing to support is $2 billion. It wants to make up the remainder of the recessionary gap using tax cuts. If a spending increase of $2 billion is approved and the MPC is 0.8, by how much will taxes need to be reduced to close the remainder of the recessionary gap? Instructions: Round your answer to 2 decimal places. 5O 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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