Assuming that the MPC=.75 and that prices are constant, which of the following fiscal policies would eliminate a recessionary gap of $60 billion maintaining a balanced budget?
A. Decreasing government spending by $60 billion while raising taxes $80 billion
B. Increasing government spending by $60 billion while reducing taxes $80 billion
C. Increasing government spending by $60 billion while raising taxes $60 billion
D.Decreasing government spending by $60 billion while reducing taxes $60 billion
E. Increasing government spending by $60 billion while raising taxes $80 billion
If the economy is near the full-employment level of output the AD/AS analysis of a change in government spending or taxation will be different from the Keynesian analysis.
T or F
1
Expert's answer
2016-06-17T09:54:03-0400
C. Increasing government spending by $60 billion while raising taxes $60 billion multiplicator of government spending=1/MPS=1/(1-MPC)=1/(1-0.75)=4 multiplicator of taxes=-MPC/MPS=-MPC/(1-MPC)=-0.75/(1-0.75)=-3 Increasing government spending by $60 billion will increase GDP by 60*4=240 billion while raising taxes $60 billion will decrease GDP by 60*3=180 billion.aise As a result, GDP will raise by 60 billion.
Numbers and figures are an essential part of our world, necessary for almost everything we do every day. As important…
APPROVED BY CLIENTS
"assignmentexpert.com" is professional group of people in Math subjects! They did assignments in very high level of mathematical modelling in the best quality. Thanks a lot
Comments
Leave a comment