Using the government expenditure multiplier from the simple model presented in the chapter, the plan to spend $3 million on highways will increase Y (GDP) by Smillion. (click the following icon for help answering this question) Using the government taxation multiplier from the simple model presented the chapter, the plan to reduce taxes by $3 million will increase Y (GDP) by $ million. (click the following icon for help answering this question) The plan that appears to be the most effective in achieving Congress's goal is to
Using the government expenditure multiplier from the simple model presented in the chapter, the plan to spend $3 million on highways will increase Y (GDP) by Smillion. (click the following icon for help answering this question) Using the government taxation multiplier from the simple model presented the chapter, the plan to reduce taxes by $3 million will increase Y (GDP) by $ million. (click the following icon for help answering this question) The plan that appears to be the most effective in achieving Congress's goal is to
Chapter17: Federal Deficits, Surpluses, And The National Debt
Section: Chapter Questions
Problem 7SQP
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Transcribed Image Text:Cazenovia is in the midst of a bad recession, and its Congress has placed economic recovery at the top of its political agenda. Different expansionary fiscal policies are currently being examined, but members of Congress are
aware of the problems associated with large, sustained government deficits and will not accept any proposal that increases the deficit by more than $3 million.
After lengthy discussions, these are the final proposals:
Plan A: Spend $3 million on highways
Plan B: Reduce taxes by $3 million
Assume the economy of Cazenovia is characterized by the following four equations in the short run:
Y = C+/+ G + NX
| = 6 (a constant)
C = Co + CAY - T)
NX = 0
where C, = 50 and Cy = 0.8.
Using the government expenditure multiplier from the simple model presented in the chapter, the plan to spend $3 million on highways will increase Y (GDP) by S million. (click the following icon for help answering this question)
Using the government taxation multiplier from the simple model presented in the chapter, the plan to reduce taxes by $3 million will increase Y (GDP) by S million. (click the following icon for help answering this question)
The plan that appears to be the most effective in achieving Congress's goal is to
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