1.8. Suppose the government reduces taxes by $20 billion, that there is no crowding out, and that...

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1.8. Suppose the government reduces taxes by $20 billion, that there is no crowding out, and that the marginal propensity to consume is 3/4.

a. What is the initial effect of the tax reduction on aggregate demand?

b. What additional effects follow this initial effect?

What is the total effect of the tax cut on aggregate demand?

c. How does the total effect of this $20 billion tax cut compare to the total effect of a $20 billion increase in government purchases? Why?

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Principles Of Economics

ISBN: 9780324168624

3rd Edition

Authors: N. Gregory Mankiw

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Question Posted: Nov 05, 2024 06:01 AM

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1.8. Suppose the government reduces taxes by $20 billion, that there is no crowding out, and that...

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