Question 1:

Assume that a hypothetical economy with an MPC of 0.9 is experiencing a severe recession. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $40 billion? Instructions: Round your answer to two decimal places. $ |:| billion b. 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 c. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt. Increase spending by $ |:| billion and increase taxes by $ |:| billion. Suppose that a country has no public debt in year 1 but experiences a budget decit of $50 billion in year 2, a budget deficit of $20 billion in year 3, a budget surplus of $10 billion in year 4, and a budget deficit of $2 billion in year 5. a. What is the absolute size of its public debt in year 5? $ |:| billion Instructions: Enter a value for the surplus or deficit as a whole number. Do not include a plus or minus sign. b. If its real GDP in year 5 is $104 billion, what is this country's public debt as a percentage of real GDP in year 5? Instructions: Enter a value for the surplus or deficit as a whole number. Do not include a plus or minus sign. Round your answer to two decimal places. |:| percent