lomework: CH 27 HW core: 0 of 1 pt Concept Question 27.3.4 15 of 15 (15 comglest

Question

lomework: CH 27 HW core: 0 of 1 pt Concept Question 27.3.4 15 of 15 (15 comgleste) HW Score: 75%, 1125of!! Help is in the midst of a bad recession, and its Congress has placed econmc recovery at the sop of its poltcal agenda Diterent expansionary fscal pokicies are cuently being examined bul members of Conge are arware of the protlerns associated with targe. sustained goverment dekRS and win not accept any proposal that increases ne bymrethas5 man After lengthy discussions, these are the final proposals Plan A: Spend 55 miltion on highways Plan B: Reduce taxes by $5 milion Assume the economy of Cazenovia is charackentzed by the folowing four equations in the shont run where Co = 50 and Cr"075 queston) 2

Explanation / Answer

Government expenditure multiplier = 1/(1-Cy) = 1(1-0.75) = 4

Change in Y = multiplier*change in government expenditure

= 4*5 = 20

20 million is the answer

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