Suppose the MPC is 0.60. Assume there are no crowding out or investment accelerator effects. Please answer the following questions with calculation details. (1) If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? (2) If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right? (3) Are the above two results the same? Why or why not?
Suppose the MPC is 0.60. Assume there are no crowding out or investment accelerator effects. Please answer the following questions with calculation details. (1) If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? (2) If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right? (3) Are the above two results the same? Why or why not?
Chapter24: Fiscal Policy
Section: Chapter Questions
Problem 8P
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