if the MPC is an economy is .8, government could shift the aggregate demand curve rightward...
Homework Answers
ANSWER:
TAX MULTIPLIER = -MPC / (1 - MPC) = -0.8 / (1 - 0.8) = -0.8 / 0.2 = -4
Tax multiplier = increase in income / decrease in tax
-4 = $100 billion / decrease in tax
decrease in tax = $100 billion / -4 = -$25 billion
so the decrease int ax by $25 billion.
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places. Enter your answers as positive numbers. In part b, enter
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a. By how much would government spending have to rise to shift
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experiencing severe recession.
Instructions: In part a, round your answers to 2 decimal
places. Enter your answers as positive numbers. In part b, enter
your answers as whole numbers.
a. By how much would government spending have to rise to shift
the aggregate demand curve rightward by $50 billion?
___billion
How large a tax cut would be needed to achieve the same
increase in aggregate demand?
___billion
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