Question

Assume the marginal propensity to consume is 0. 8. How will a decrease in taxes of $100 billion and a decrease in government spending of $100 billion affect aggregate demand?.

Answer 1

Aggregate demand will decrease by $900 billion.

The overall demand for finished goods and services in an economy at a certain period is known as aggregate demand (AD) or domestic final demand (DFD) in the field of macroeconomics. Effective demand is a common name for it, however other times this term is used to make a distinction. This is a country's demand for its gross domestic output. It details the volume of goods and services that will be bought at every price point. The aggregate demand is made up of investment, corporate and governmental expenditures, consumer spending, and net exports. Real output is represented on the horizontal axis and the price level is plotted on the vertical axis to represent the aggregate demand curve. Although it is presumed to be downward sloping, the Sonnenschein-Mantel-Debreu findings demonstrate that the curve's slope

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