Assume that the economy is in a severe recession with a high level of under-utilized capacity. The estimated overall consumption function is: C = $150 million + 0.9 Y The government estimates that a $180 B increase in Aggregate Demand is necessary to restore the economy to a full-employment level of output. It determines that the best way to do achieve this is through fiscal stimulus. How much of a tax cut (in $) would be necessary?

Assume that the economy is in a severe recession with a high level of under-utilized capacity. The estimated overall consumption function is: C = $150 million + 0.9 Y The government estimates that a $180 B increase in Aggregate Demand is necessary to restore the economy to a full-employment level of output. It determines that the best way to do achieve this is through fiscal stimulus. How much of a tax cut (in $) would be necessary?

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 5SQP

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Assume that the economy is in a severe recession with a high level of under-utilized capacity. The estimated overall consumption function is: C = $150 million + 0.9 Y The government estimates that a $180 B increase in Aggregate Demand is necessary to restore the economy to a full-employment level of output. It determines that the best way to do achieve this is through fiscal stimulus. How much of an increase in direct government spending would be necessary to achieve this desired AD increase? How much of a tax cut (in $) would be necessary? If the government wanted to maintain a balanced budget, would it be able to stimulate the economy through fiscal policy actions? How could it do this?
Assume that the economy is in a severe recession with a high level of under-utilized capacity. The estimated overall consumption function is: C = $150 million + 0.9 Y The government estimates that a $180 B increase in Aggregate Demand is necessary to restore the economy to a full-employment level of output. It determines that the best way to do achieve this is through fiscal stimulus. If the government wanted to maintain a balanced budget, would it be able to stimulate the economy through fiscal policy actions? How could it do this?
Assume that the full-employment level of output is $1,000 and the price level associated with full-employment output is 100. Also assume that the economy's current level of output is $1,100 and, at the price level of 100, current aggregate demand is $1,200. If the government moves the economy back to the full-employment level of output by reducing government purchases by $50, then the expenditures multiplier equals Multiple Choice 10. 4. 5. 2.
Suppose actual real GDP is $14 trillion and potential real GDP is $18.5trillion. If the marginal propensity to consume (MPC) is 0.85and government purchases increase by $526billion, then to close this gap lump-sum taxes should change by $_______billion. Please respond accurately and provide a detailed explanation with calculations; if not, I will downvote several times. Note:- Please avoid using ChatGPT and refrain from providing handwritten solutions; otherwise, I will definitely give a downvote. Also, be mindful of plagiarism. Answer completely and accurate answer. Rest assured, you will receive an upvote if the answer is accurate.