Assume a simple Keynesian depression economy with a multiplier of 4 and an initial equilibrium income of
Question:
a. What is the MPC equal to? The MPS?
b. How much would government spending have to rise to move the economy to full employment?
c. Assume that the government plans to finance any spending by raising taxes to cover the increase in spending (it intends to run a balanced budget). How much will government spending and taxes have to rise to move the economy to full employment?
d. From the initial equilibrium, if investment grows by $100, what will be the new equilibrium level of income and savings?
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a With a multiplier of 4 MPC 075 and MPS 025 b The income gap is 1000 theref...View the full answer
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