Assume that a hypothetical economy with an MPC of 0.75 is experiencing a severe recession.Instructions: In part a, round your answers to 1 decimal place. Enter your answers as a positive number. In part b, enter your answersas a whole number.a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $40 billion?billionHow large a tax cut would be needed to achieve the same increase in aggregate demand?Tax cut = $billionb. Determine one possible combination of government spending increases and tax increases that would accomplish the same goalwithout changing the amount of outstanding debt.Increase government spending by $billionIncrease taxes by $billion

Answer: Given, MPC=0.75 (a). The formula for the increase in aggregate demand is given below: Change…

Assume that a hypothetical economy with an MPC of 0.75 is experiencing a severe recession. Instructions: In part a, round your answers to 1 decimal place. Enter your answers as a positive number. In part b, enter your answers as a whole number. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $40 billion? 24 billion How large a tax cut would be needed to achieve the same increase in aggregate demand? Tax cut = $ billion b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt. Increase government spending by $ billion Increase taxes by $ | billion

Assume that a hypothetical economy with an MPC of 0.75 is experiencing a severe recession. Instructions: In part a, round your answers to 1 decimal place. Enter your answers as a positive number. In part b, enter your answers as a whole number. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $40 billion? 24 billion How large a tax cut would be needed to achieve the same increase in aggregate demand? Tax cut = $ billion b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt. Increase government spending by $ billion Increase taxes by $ | billion

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 5P

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