Ch $33$ Assignment

M Question $15-$ Ch $33$ Assignment $-$ Connect

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Suppose that the economy is experiencing a recession with an estimated recessionary gap of $$10$ billion. Congress is considering the use of fiscal policy to ease the recession, but due to current political sentiments$,$ it has determined that the maximum spending increase the government is willing to support is $$1$ billion. It wants to make up the remainder of the recessionary gap using tax cuts.

If a spending increase of $$1$ billion is approved and the MPC is $0\mathrm{.}75,$ by how much will taxes need to be reduced to close the remainder of the recessionary gap?

Instructions: Round your answer to $2$ decimal places.

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