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

Question

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

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

Explanation / Answer

use this eqn. 1/(1-MPC)=dy/dg............(1) Given: dy=$50 Billion MPC=0.75 Substitute in (1), we get, ==>dg=$12.5 Billion ==> Government needs to spend $12.5 Billion in the economy. We know that dy/dt is ==> -MPC/(1-MPC).............(2) ie.,Substituting values in (2) we get dy/dt=-3 dy=$50 Billion hence dt=-$16.67 Billiom ==> Government have to decrease the taxes by $16.67 Billion Sorry I am not sure about the (3) part but please give some rating for (1) and (2) parts that I have solved.Thanks

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