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1.Explain the effects of the following actions on equilibrium income (Assume that the marginal propensity to consume is 0.75). a.Government purchases rise by $40 billion
1.Explain the effects of the following actions on equilibrium income (Assume that the marginal propensity to consume is 0.75).
a.Government purchases rise by $40 billion
b.Taxes fall by $40 billion.
2. Explain how fiscal policy can be used to close the (a) contractionary gap and (b) inflationary gap.
3. Why does a larger government budget deficit increase the magnitude of the crowding-out effect?
4.Discuss some of the challenges associated with expansionary fiscal policy (not less than 300words).
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