In the 1960s the U.S entered the Vietnam War, and military expenditures (part of government expenditures) grew from an annual rate of $113 billion to 138 billion. The economy was near full-employment and, therefore, given there was no offsetting tax increase, inflation pressures emerged. Assume the MPC is .75 A) How did the increase in military expenditures affect AD? B) If in 1968 the AD Excess was $150 billion, what change in government expenditures would you have recommended?

In the 1960s the U.S entered the Vietnam War, and military expenditures (part of government expenditures) grew from an annual rate of $113 billion to 138 billion. The economy was near full-employment and, therefore, given there was no offsetting tax increase, inflation pressures emerged. Assume the MPC is .75 A) How did the increase in military expenditures affect AD? B) If in 1968 the AD Excess was $150 billion, what change in government expenditures would you have recommended?

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter11: Fiscal Policy

Section: Chapter Questions

Problem 5SQP

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