Discussion:
Assume that a hypothetical economy with an mpc of 0.75 is experiencing servere recession
a. By how much would government spending have to rise to shift the agregate demand curve rightward by $40 billion?
How large a tax would be needed to achieve the same increase in aggregate demand?
b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt
increase spending by?
increase tax by?