Assume that an economy with an MPC of 0.8 is experiencing a recessionary gap of $25 billion. The government has decided to intervene in the economy by using fiscal policy to fight the recession. By how much would government spending have to change to bring about a total change in aggregate demand of $25 billion? Show your work.
Assume that an economy with an MPC of 0.8 is experiencing a recessionary gap of $25 billion. The government has decided to intervene in the economy by using fiscal policy to fight the recession. By how much would government spending have to change to bring about a total change in aggregate demand of $25 billion? Show your work.
Chapter19: The Keynesian Model In Action
Section: Chapter Questions
Problem 13SQ
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Assume that an economy with an MPC of 0.8 is experiencing a recessionary gap of $25 billion.
The government has decided to intervene in the economy by using fiscal policy to fight the recession. By how much would government spending have to change to bring about a total change in aggregate demand of $25 billion? Show your work.
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