Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $25 billion? How large a tax cut would be needed to achieve the same increase in aggregate demand? Instructions: Round your answer to 2 decimal places and enter your answer as a positive number. b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt.

Answer and Explanation:

a. The amount that the government spending have to rise to shift the aggregate demand curve rightward by $25 billion is $5 million

Thus:

The multiplier is 1/1-0.8 = 1/0.2 = 5 million

Tax cut would be necessary to achieve the same increase in aggregate demand is $6.25 billion which is = (5 /0.8).

The part of tax saving is going to be:

($6.25 -$5 =$1.25 billion)

b. One possible combination is $1 billion on government spending, and tax cut will decrease in $5 billion in order to accomplish the same goal.

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

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these are the four factors that influence enterpreneurship development

1. economic development

2. culture

3.technological development

4. education