Suppose the president proposes an $800 billion economic stimulus package intended to create jobs. A major criticism of this new spending proposal is that it is not matched by a tax increase. Assume the U.S. economy is below full employment, and Congress has passed a law requiring that any increase in spending be matched or balanced by an equal increase in taxes. The MPC is 0.75, and aggregate demand must be increased by $1,000 billion to reach full employment. Will the economy reach full employment if Congress increases spending by $800 billion and increases taxes by the same amount? True or False: If Congress increases spending by $800 billion and increases taxes by the same amount, the economy will not reach full employment. True

Suppose the president proposes an $800 billion economic stimulus package intended to create jobs. A major criticism of this new spending proposal is that it is not matched by a tax increase. Assume the U.S. economy is below full employment, and Congress has passed a law requiring that any increase in spending be matched or balanced by an equal increase in taxes. The MPC is 0.75, and aggregate demand must be increased by $1,000 billion to reach full employment. Will the economy reach full employment if Congress increases spending by $800 billion and increases taxes by the same amount? True or False: If Congress increases spending by $800 billion and increases taxes by the same amount, the economy will not reach full employment. True

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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