bo Illustrate the impact of a $500 million increase in government spending by adjusting the graph. In the full Keynesian model, the marginal propensity to save (MPS) is 0.25. What is the resulting change in output? Output increases by $500 million x 1.33, or $666.6 million. Output increases by $2,000 million, or $2 billion. Output decreases by $500 million 1.33, or $666.6 million. Output decreases by $2,000 million, or $2 billion. (in millions of dollars) Aggregate expenditure AB=AI C+I+G+X-M

bo Illustrate the impact of a $500 million increase in government spending by adjusting the graph. In the full Keynesian model, the marginal propensity to save (MPS) is 0.25. What is the resulting change in output? Output increases by $500 million x 1.33, or $666.6 million. Output increases by $2,000 million, or $2 billion. Output decreases by $500 million 1.33, or $666.6 million. Output decreases by $2,000 million, or $2 billion. (in millions of dollars) Aggregate expenditure AB=AI C+I+G+X-M

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter9: The Keynesian Model In Action

Section9.4: Recessionary And Inflationary Gaps

Problem 1YTE

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Illustrate the impact of a $500 million increase in government spending by adjusting the graph. In the full Keynesian model, the marginal propensity to save (MPS) is 0.25. Aggregate expenditure (in millions of dollars)Aggregate income = real GDP (in millions of dollars)AE = AIC+I+G+X−M What is the resulting change in output? Output decreases by $2,000 million, or $2 billion. Output increases by $500 million×1.33$500 million×1.33 , or $666.6 million. Output decreases by $500 million×1.33$500 million×1.33 , or $666.6 million. Output increases by $2,000 million, or $2 billion. If the government cut taxes by $500 million instead, what would be the resulting change in output? Output decreases by $1,500 million, or $1.5 billion. Output increases by $666.6 million. Output increases by $1,500 million, or $1.5 billion. Output decreases by $500 million×0.25$500 million×0.25 , or $125 million.
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