The graph shows the income-expenditure model for the country of Mireland, where AE represents aggregate expenditure. The Mirsh government wants to cut spending owing to a huge budget deficit and, as such, decides to reduce infrastructure spending by $11 billion. Show the impact of this spending cut given a marginal propensity to consume (MPC) of 0.6 and a total tax take of one-quarter in any changes in GDP. In this example, assume that there is no international trade or inflation, and that interest rates are fixed.

The graph shows the income-expenditure model for the country of Mireland, where AE represents aggregate expenditure. The Mirsh government wants to cut spending owing to a huge budget deficit and, as such, decides to reduce infrastructure spending by $11 billion. Show the impact of this spending cut given a marginal propensity to consume (MPC) of 0.6 and a total tax take of one-quarter in any changes in GDP. In this example, assume that there is no international trade or inflation, and that interest rates are fixed.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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