Essay
The federal government decides to stimulate the economy and increases government expenditure on new infrastructure projects by $20 billion. The marginal propensity to consume is MPC = 75 and the marginal propensity to import is MPI = .20. Suppose the crowding-out effect is twice the amount of government spending.
a. In a closed economy, what is the increase in output caused by the stimulus package of $20 billion?
b. What is the increase in output if the economy is open?
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a. If the economy is closed, output incr...View Answer
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