In the economic of Zip, the marginal propensity to consume is 0.8. Government expenditures on goods and services are 50 billion, and taxes are 60 billion. Zip has no exports and no imports.
1. the government increases its expenditures on goods and services to 60 billion. calculate the final change in aggregate demand as a result of this increase in government expenditures.
2. the government increases taxes to 70 billion. calculate the final chage in aggregate demand as a result of this increase in taxes.
3. the government simultaneously increases both its expenditures on goods and services and taxes by 10 billion. what is the net change in aggregate demand? why does aggregate demand increase?