Homework Answers
The government wants to increase the aggregate demand by $10 billion.
MPC = 0.5
MPS = 1 - MPC = 1 - 0.5 = 0.5
The tax multiplier is calculated as -MPC/MPS = -0.5/0.5 = -1
The change in taxes can be calculated as:
So, the taxes must fall by $10 billion to increase the aggregate demand by $10 billion. Therefore, the correct answer is 'Option D'.
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Question 10 (1 point) A decline in the aggregate demand has led to a decline in...
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number.
a. How much does aggregate demand need to change to restore the
economy to its long-run equilibrium?
$ ___________ billion
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to change to shift aggregate demand by the amount you found in part
a?
$ ___________ billion
Suppose instead that the MPC is 0.8.
c. How much does aggregate demand and government purchases need
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Instructions: Enter your answers as a whole
number.
a. How much does aggregate demand need to change to restore the
economy to its long-run equilibrium?
$ ___________ billion
b. If the MPC is 0.75, how much does government purchases need
to change to shift aggregate demand by the amount you found in part
a?
$ ___________ billion
Suppose instead that the MPC is 0.8.
c. How much does aggregate demand and government purchases need
to change to restore the economy...
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