1) In an economy where people spend 75% of their incomes, the government increases taxes by $6000. Calculate the change...
1) In an economy where people spend 75% of their incomes, the government increases taxes by $6000. Calculate the change in real GDP that results.
(round your final answer to two decimal points. Use a positive number to denote an increase and a negative number (with negative sign) to denote a decrease.)
2) In an economy where people spend 75% of their incomes, the government lowers its spending by $6000. Calculate the change in real GDP that results.
(round your final answer to two decimal points. Use a positive number to denote an increase and a negative number (with negative sign) to denote a decrease.)
Homework Answers
1) MpC=75%=0.75
then tax multiplier=-Mpc/1-Mpc=0.75/1-0.75= -3
Increase in taxes will decrease real GDP by 18000
Change in GDP=-18000
2)Govt expenditure multiplier=1/1-Mpc=1/1-0.75=4
Decrease in G will decrease real GDP by 24000
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