THE AGGREGATE EXPENDITURE MODEL (IN THE SHORT RUN) YOU MUST SHOW YOUR CALCULATIONS IN THE SPACE BELOW FOR THE NEXT PROBLEM USE THE FOLLOWING FORMULA: CHANGE IN GDP = [ - MPC / (1-MPC) ] * CHANGE IN T

Initially, the economy is producing $13 trillion in goods and services and net taxes is equal to $3 trillion. Moreover, potential output is $15 trillion.

Assume that the marginal propensity to consume is 0.8 (MPC=0.8).

a) What is the value of the net taxes multiplier? (3 POINTS)

b) What is the new value of net taxes that will make the economy reach full employment? (7 POINTS)