Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession.  A) By how much would government spending have to rise to shift the aggreagte demand curve rightward by $ 25 billion?  How large a tax cut would be needed to achieve the same increase in aghregate demand?  Instructions: Round your answer to 2 decimal places and enter your answer as a positive number.  Tax cut= ? (billion) B) Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt.  Increase government spending by (?) billion.  Increase taxes by (?) billion.

Question

Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession. 

A) By how much would government spending have to rise to shift the aggreagte demand curve rightward by $ 25 billion? 

How large a tax cut would be needed to achieve the same increase in aghregate demand? 

Instructions: Round your answer to 2 decimal places and enter your answer as a positive number. 

Tax cut= ? (billion)

B) Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt. 

Increase government spending by (?) billion. 

Increase taxes by (?) billion. 

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