Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Fill in the blank A country is in the midst of a recession with real GDP estimated to be $9 billion below potential GDP. The

Fill in the blank

A country is in the midst of a recession with real GDP estimated to be $9 billion below potential GDP. The government's policy analysts believe the current value of the marginal propensity to consume (MPC) is 0.90

a. If the government wants real GDP to equal potential GDP, it should increase government spending by $_______ billion. Alternatively, it could reduce taxes by $_________ billion

b. Suppose that during recession, people have become less confident and decide they will only spend 50% of any additional income. In this case, if the government increases spending by the amount calculated in part a, real GDP will end up less than potential GDP by $_______ billion

c. With the same decrease in consume spending described in part b, if the government decreases taxes by the amount calculated in part a, then real GDP will end up greater than potential GDP by $________ billion

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Business Statistics for Contemporary Decision Making

Authors: Ken Black

6th Edition

978-0470409015, 9780470559062, 470409010, 470559063, 978-0470910184

More Books

Students also viewed these Economics questions

Question

LO14.2 Discuss how game theory relates to oligopoly.

Answered: 1 week ago