Homework Answers
Answer : 1) Aggregate demand = Consumption + Investment + Government expenditure + Net export.
Now if only government expenditure increase by $100 billion then the aggregate demand will increase by $100 billion.
2) If tax rate increase then aggregate demand decrease. So, if only taxes increase by $100 billion then the aggregate demand will decrease by $100 billion.
3) Now if simultaneously the government spending increase and taxes increase by $100 billion then the aggregate demand will not change. Because increase in government spending increase the GDP by $100 billion and increase in taxes decrease the GDP by $100 billion.
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Explain the change in aggregate demand when 1)Taxes are increased by $100 Billion 2. (7 pts)...
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2. (7 pts) Both 1 and 2 occur simultaneously (please try to do
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