Assume that a hypothetical economy with an MPC of 0.75 is experiencing asevere r

Question

Assume that a hypothetical economy with an MPC of 0.75 is experiencing asevere recession.

By how much would government spending have to rise to shift the aggregate demand curve rightward by $50 billion?

Instructions: Round your answer to two decimal places.

$ billion

How large a tax cut would be needed to achieve the same increase in aggregate demand?

Instructions: Round your answer to two decimal places. Enter a positive value.

$ billion

Determine one possible combination of government spending increases and tax increases that would accomplish the same goal.

Increase spending by$ billion and increase taxes by $ billion.

Explanation / Answer

1) 12.5 billion

2) 16.67 billion,

3) 50 billion

4) 50 billion   

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