Chapter 13, Problem 11P

To determine

How much the government should increase its expenditure to generate a net rightward shift in aggregate demand curve equal to $200 billion?

Concept introduction:

Marginal Propensity to Consume (MPC): MPC refers to the proportion of the total increase in disposable income that households devote to consumption.

Planned Investment Expenditure (I): It refers to the amount that the private sector firms plan to spend on inventory and purchase of capital goods during a given period of time.

Balanced Budget: Federal government budget is balanced when its receipts and expenditure are equal during a year.

Budget Deficit: Budget deficit refers to the excess of federal government expenditure over its receipts during a year.

Fiscal Policy: Fiscal policy refers to the policy of the federal government with regard to its spending and taxation.