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5. Using fiscal policy to avoid the recession of 2009. GDP in 2009 was roughly $15,000...

5. Using fiscal policy to avoid the recession of 2009. GDP in 2009 was roughly $15,000 billion ($15tr). GDP fell by approximately 3 percentage points in 2009. Throughout this question, assume that only consumption depends on Y.

a. How many billion dollars is 3 percent of $15,000 billion?

b. If the marginal propensity to consume were 0.5, by how much would government spending have to have increased to prevent a decrease in output?

c. If the MPC were 0.5, by how much would taxes have to have been cut to prevent a decrease in output?

d. Suppose Congress had chosen to both increase government spending and raise taxes by the same amount in 2009. What increase in government spending and taxes would have been required to prevent the decline in output in 2009?

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