Jeffery Walburgermod6

# Jeffery Walburgermod6 - Jeffery Walburger Module 6 6-1...

This preview shows pages 1–2. Sign up to view the full content.

Jeffery Walburger Module 6 6-1 Assume that a hypothetical economy with an MPC of .8 is experiencing severe recession. a) By how much would government spending have to increase to shift the aggregate demand curve rightward by \$25 billion? Ans: 5billion Show work: 1/1-.8=.2 then 1/.2= 5x5=25billion b) How large a tax cut would be needed to achieve this same increase in aggregate demand? Ans: 6.25 billion Show work:5/.8=6.25 billion c) Why the difference in a) and b) above? This is because part of a tax reduction increases saving, rather than consumption. To increase initial consumption be a specific amount, the government must reduce taxes by more than that amount. d) Determine one possible combination of government spending increases and tax decreases that would accomplish this same goal. 4 billion increase is government spending = 4 x the multiplier 5 =20 billion 4 billion / .8 = 5 billion ---------- 25 billion 6.2 Specifically, in one sentence each, state the main effect of built-in (or automatic)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 3

Jeffery Walburgermod6 - Jeffery Walburger Module 6 6-1...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online