Currently, a? government's budget is balanced. The marginal propensity to consume is 0.75. The government has determined that each additional?$10 billion in new government debt it issues to finance a budget deficit pushes up the market interest rate by .10 percent. It has also determined that every 0.10?(?one-tenth?) percentage change in the market interest rate generates a change in planned investment expenditures equal to ?$4 billion.? Finally, the government knows that to close a recessionary gap and take into account the resulting change in the price? level, it must generate a net rightward shift in the aggregate demand curve equal to ?$150 billion.
Assuming that there are no direct expenditure offsets to fiscal? policy, calculate the increase in government expenditures necessary to close the recessionary gap. ? (Hint: How much private investment spending will each? $10 billion increase in government spending crowd? out?) billion. ?(Enter your response rounded to two decimal? places.)