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Calculations: If there a $2billion increase in government spending, other things being equal, what would be...

Calculations:

  1. If there a $2billion increase in government spending, other things being equal, what would be the resulting change in aggregate demand, and how much of the change would a change in consumption, if the MPC were the following:
  1. 1/3?
  2. 1/2?
  3. 2/3?
  4. 3/4?
  5. 4/5?
  1. The economy is experiencing a $225 million inflationary gap. If the government decided to solve this macroeconomic disequilibrium using a change in taxes, would you recommend an increase or decrease in taxes? If the MPC =0.9, what magnitude of tax change would be appropriate?

3.  The economy is experiencing a recessionary gap of $30 billion. If the MPC=0.75, what government spending stimulus would you recommend to move the economy back to full employment? If the MPC=0.66

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