asked 61.3k views
5 votes
. Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $50 billion to the left. The government wants to change its spending to offset this decrease in demand. The MPC is 0.80. Suppose the effect on aggregate demand from a change in taxes is 4/5 the size of the change from government expenditures. There is no crowding out. What should the government do if it wants to offset the decrease in aggregate demand?

asked
User Schmidko
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1 Answer

6 votes

Answer

the correct answer is

Reduce taxes by $5.56 billion dollars. Increase expenditures by $5.56 billion dollars.

good luck ❤

answered
User Soon Santos
by
7.6k points
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