K Suppose that real GDP is currently $1.18 trillion, potential GDP is $1.24 trillion, the government purchases multiplier is 2, and the tax multiplier is -1.2. a. Holding other factors constant, government purchases will need to be increased by $ to equilibrium at potential GDP. (Round to four decimal places as needed.) trillion to bring the economy b. Holding other factors constant, taxes have to be cut by $trillion to bring the economy to equilibrium at potential GDP. (Round to four decimal places as needed.) c. Construct an example of a combination of increased government spending and tax cuts that will bring the economy to equilibrium at potential GDP. The combination of increasing government spending by economy to equilibrium at potential GDP (Round to four decimal places as needed.) and cutting taxes by $trillion will bring the
K Suppose that real GDP is currently $1.18 trillion, potential GDP is $1.24 trillion, the government purchases multiplier is 2, and the tax multiplier is -1.2. a. Holding other factors constant, government purchases will need to be increased by $ to equilibrium at potential GDP. (Round to four decimal places as needed.) trillion to bring the economy b. Holding other factors constant, taxes have to be cut by $trillion to bring the economy to equilibrium at potential GDP. (Round to four decimal places as needed.) c. Construct an example of a combination of increased government spending and tax cuts that will bring the economy to equilibrium at potential GDP. The combination of increasing government spending by economy to equilibrium at potential GDP (Round to four decimal places as needed.) and cutting taxes by $trillion will bring the
Chapter11: Fiscal Policy
Section: Chapter Questions
Problem 1.4P
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