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If There Is a Recessionary Gap of $100 Billion and the MPC

Question 47

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If there is a recessionary gap of $100 billion and the MPC is 0.8, by how much must taxes be reduced to eliminate the recessionary gap? Assume that prices are stuck and that investment, net exports, government expenditures, and taxes do not change with changes in real GDP.

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If the MPC is 0.8, then the MPS is 0.2 a...

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