Econ Review Practice Test.
Econ Review Practice Test. Assume that a hypothetical economy with an MPC of 0.8 is experiencing severe recession. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $25 billion? - CORRECT ANSWER $5 billion How large a tax cut would be needed to achieve the same increase in aggregate demand? - CORRECT ANSWER Tax cut = $6.25 billion. 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. - CORRECT ANSWER Increase government spending by $25 billion. Increase taxes by $25 billion. Assume that a hypothetical economy with an MPC of 0.75 is experiencing severe recession. . By how much would government spending have to rise to shift the aggregate demand curve rightward by $50 billion? How large a tax cut would be needed to achieve the same increase in aggregate demand? - CORRECT ANSWER $12.50 billion. $16.67 billion . Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt. - CORRECT ANSWER Increase spending by $50 billion. Increase taxes by $50 billion.
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