Exploring Macroeconomics
7th Edition
ISBN: 9781285859446
Author: Sexton, Robert L.
Publisher: Cengage Learning
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Question
Chapter 16, Problem 11P
To determine
To explain:
The reason behind the increase in aggregate demand when equal amount of dollar increases in both the government purchases and net taxes.
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Chapter 16 Solutions
Exploring Macroeconomics
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- Right now many economies in the world are experiencing a downturn due to the Corona Virus.a) What kind of fiscal policy can governments use to address the decline? b) What actions will be taken by the government in implementing the fiscal policy that you described in part a? c) What will be the effect on Aggregate Demand (if any) as a result of the actions taken in part b?d) What will be the effect on Aggregate Supply (if any) as a result of the actions taken in part b?arrow_forwardSuppose actual real GDP is $13.74 trillion, potential real GDP is $12.69 trillion, and the marginal propensity to consume is 0.6. If we ignore price effects, and if the government already decided to increase its spending by $1.61 trillion, by how many trillions of dollars should the government change its lump sum taxes to fix the gap? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.) Correct Answer: 3.38 Please solve to get that same answerarrow_forwardWhy does a balanced budget increase in spending and taxes increase aggregate demand?arrow_forward
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- Consider an economy that is operating below the full-employment level of real GDP. What would be the effect of an increase in government spending on aggregate demand and real GDP?arrow_forwardSuppose actual real GDP is $9.06 trillion, potential real GDP is $6.42 trillion, and the marginal propensity to consume is 0.59. If we ignore price effects, by how many trillions of dollars should the government change its lump sum taxes to fix the gap? (Round this to two digits after the decimal and enter this value as either a positive value or a negative value without the dollar sign.)arrow_forwardSuppose real GDP is currently $12.5 trillion and potential real GDP is $13 trillion. If the president and Congress increased government purchases by $500 billion, what would be the result on the economy?arrow_forward
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