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28 Sep 2019
Assume an economy that consists of consumers, government, business investors, and an international sector. C+I+G+X=GDP.
Assume the MPS is 0.1
How much can we expect the government to expand if the government increases its spending by $400 billion and at the same time Congress imposes a tax increase of the same amount ($400 billion to pay for increased spending and that tax increase causes C to fall by $360 billion?
Show your work.
Hint: You have to calculate the multiplier and apply it appropriately. Determine the effect of the fall in C on GDP. Determine the effect of the increase in government spending on GDP. What is the net result? DO NOT USE THE TAX MULTIPLIER.
Assume an economy that consists of consumers, government, business investors, and an international sector. C+I+G+X=GDP.
Assume the MPS is 0.1
How much can we expect the government to expand if the government increases its spending by $400 billion and at the same time Congress imposes a tax increase of the same amount ($400 billion to pay for increased spending and that tax increase causes C to fall by $360 billion?
Show your work.
Hint: You have to calculate the multiplier and apply it appropriately. Determine the effect of the fall in C on GDP. Determine the effect of the increase in government spending on GDP. What is the net result? DO NOT USE THE TAX MULTIPLIER.
Darryn D'SouzaLv10
28 Sep 2019
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