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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experiencing severe recession.
Instructions: In part a, round your answers to 2 decimal
places. Enter your answers as positive numbers. In part b, enter
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the aggregate demand curve rightward by $50 billion?
___billion
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increase in aggregate demand?
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