In each of the following cases, calculate the spending multiplier and determine the size and shift of each fiscal policy on the AD (aggregate demand) curve.
In each of the following cases, calculate the spending multiplier and determine the size and shift of each fiscal policy on the AD (aggregate demand) curve.
Chapter21: Fiscal Policy
Section: Chapter Questions
Problem 20SQ
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Could you do C and D
In each of the following cases, calculate the spending multiplier and determine the size and shift of each fiscal policy on the AD (aggregate demand) curve.
a. Government increases spending by $4 billion in an economy with a MPW of 0.7
b. Government spending decreases by $2 billion in an economy with a MPC of 0.65.
c. Government increases taxes by $3 billion in an economy with a MPW of 0.35
d. A $5 billion tax cut causes an initial increase in spending of $1.5 billion.
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