Assume that an economy with an MPC of 0.8 is experiencing a recessionary gap of $25 billion. The government has decided to intervene in the economy by using fiscal policy to fight the recession. By how much would government spending have to change to bring about a total change in aggregate demand of $25 billion? Show your work.

Assume that an economy with an MPC of 0.8 is experiencing a recessionary gap of $25 billion. The government has decided to intervene in the economy by using fiscal policy to fight the recession. By how much would government spending have to change to bring about a total change in aggregate demand of $25 billion? Show your work.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter15: Fiscal Policy

Section: Chapter Questions

Problem 18SQ

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