The government expenditure required to retain the full employment level in the economy.

Question

The federal government implements an expansionary fiscal policy of increased spending and decreased taxes. Policy advisors predict output will increase 4% but are surprised when only 3% growth occurs. What might account for the fact that GDP increased by less than the multiplier predicted? a. Policy advisors' calculation of MPS was too high b. The aggregate supply curve was perfectly elastic c. Foreign purchases of domestic goods was greater than expected due to a devalued currency d. Consumption increases more than expected because of the decrease in taxes e. Investment decreased due to rising interest rates

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Chapter 11, Problem 20SQ

To determine

The government expenditure required to retain the full employment level in the economy.

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