Question

How do changes in government spending and taxes affect the equilibrium price level and real GDP?

Answer 1

ANSWER:

1. Such financial strategy will expand utilization level of the individuals, which will additionally build the level of GDP and furthermore the value level.

2. In the event that MPC is 0.75,

burning through multiplier=1/1-0.75=4

an expansion in $10 million spending will make GDP increment by 10*4=$40 millions

3. A contractionalry financial strategy includes decline in government spending or increment in taxes.

4. Increment in charges is contractionary arrangement, increment in spending is expansionary financial starategy.

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