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1 explain the effects of the following actions on

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1. Explain the effects of the following actions on equilibrium income.

a. Government purchases rise by $40 billion.

b. Taxes fall by $40 billion.

Assume that the marginal propensity to consume is 0.75

2. Explain how fiscal policy can be used to close the (a) contractionary gap and (b) inflationary gap.

3. Discuss some of the challenges associated with expansionary fiscal policy.

4. How serious is the national debt to our economic stability?

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