Suppose the government reduces taxes by 2 billion, that there is no crowding out and that the

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Suppose the government reduces taxes by €2 billion, that there is no crowding out and that the MPC is 0.75.

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

b. What additional effects follow this initial effect? What is the total effect of the tax cut on AD?

c. How does the total effect of this €2 billion tax cut compare to the total effect of a €2 billion increase in government purchases? Why?

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Economics

ISBN: 9781473768543

5th Edition

Authors: Gregory Mankiw, Mark P. Taylor

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Question Posted: Apr 26, 2024 02:01 AM

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Suppose the government reduces taxes by 2 billion, that there is no crowding out and that the

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a The initial effect of the tax reduction on aggregate demand AD can be calculated using the marginal propensity to consume MPC The MPC represents the ...View the full answer

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