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If taxes were cut by 1 trillion adn the mpc was .8 how much would total spending

a)increase in the first year with two spending cycles?

b) Increase over an infinite time perios?

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Darryn D'Souza
Darryn D'SouzaLv10
22 Feb 2021
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Related questions

Assume that a hypothetical economy with an MPC of 0.9 is experiencing a severe recession.
Ā 
a. by how much would government spending have to rise to shift the aggregate demand curve rightward by $25 billion___correct billion.
How large would a tax-cut be needed to achieve the same increase in aggregate demand?
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.Ā 
Ā 
Increase government spending by____correct billion.
Increase taxes by____correct billion.Ā 
Ā 

Assume that a hypothetical economy with an MPC of 0.9 is experiencing a severe recession.

By how much would government spending have to rise to shift the aggregate demand curve rightward by $50 billion?

Instructions: Round your answer to two decimal places.

$ billion

How large a tax cut would be needed to achieve the same increase in aggregate demand?

Instructions: Round your answer to two decimal places. Enter a positive value.

$ billion

Determine one possible combination of government spending increases and tax increases that would accomplish the same goal.

Increase spending by $ billion and increase taxes by $ billion.

Economics

Unit 9: Keynesian Economics - Multipliers

Name _______________________________________________________

Answer the following problems. Show ALL work for every problem.

Keep in mind the equations you learned:

Change in G x SM = Change in AE

Also recall that if you know how much AE must change by AND you know the SM, you can solve for how much G must change by.

1. MPC = .9 AE must increase by $350 billion to reach the full employment level of RGDP. Solve for the change in Government spending required to accomplish this. 2. MPC = .9 AE must decrease by $250 billion to eliminate an inflationary gap. Solve for the change in Government spending required to accomplish this. 3. MPS = .15 AE must increase by $700 million to eliminate a recessionary gap. Solve for the change in Government spending required to accomplish this. 4. MPC = .8 Government spending increases by $500 million. How much does AE increase by? 5. A recessionary gap of $18 billion exists. The SM = 4. How much must Government Spending increase by? 6. An inflationary gap exists of $20 billion. The SM = 4. How much must Government Spending DECREASE by? 7. The MPC is .75. AE must increase by $100 million. How much must Government Spending increase by?

Instead of increasing Government Spending, Congress has chosen to decrease tax rates. Use the tax multiplier (TM) to solve the following.

Change in Taxes x TM = Change in AE

8. The MPC is .75. AE must increase by $100 million. How much should the tax decrease be?

9. The MPS is .1. AE must decrease by $80 million to reduce inflation. How much should the tax INCREASE be?

10. Suppose the government wishes to eliminate an inflationary gap of $100 billion and the MPC is .60. How much must the government increase taxes by?

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