Macroeconomics + Economy 2009 Update 18th Edition by Campbell McConnell, Sean Masaki Flynn,Stanley Brue

Exercise 10

Assume that a hypothetical economy with an MPC of.8 is experiencing severe recession. By how much would government spending have to increase to shift the aggregate demand curve rightward by $25 billion How large a tax cut would be needed to achieve this same increase in aggregate demand Why the difference Determine one possible combination of government spending increases and tax decreases that would accomplish this same goal.