Question

21) Assuming the AD excess = $1770B and MPC = .74, complete the questions below. Please round to at least 2 decimal places.

a. (10 pts) Given the situation in a, if government spending decreases by $460B, calculate the impact to aggregate demand. Illustrate this scenario on the appropriate graph. QF and the shift that occurs must be included on the graph. Is there a GDP gap? If so, what type?

b. (10 pts) Given the situation in a, calculate what would happen if the government increases taxes by $460B. Illustrate this scenario on a separate graph. QF and the shift that occurs must be included on the graph. Is there a GDP gap? If so, what type?

c. (5 pts) Which type of government intervention (from scenarios A & B ABOVE) gets us closer to full employment output?

Answer 1

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