Question

If the MPC in an economy is 0.8, government could close a recessionary expenditure gap of $100 billion by cutting taxes by

Answer 1

Answer:

cutting taxes by $125 billion

Explanation:

given data

economy = 0.8

expenditure gap = $100 billion

to find out  

cutting taxes

solution

we get here cutting or reduce taxes that is express as

cutting taxes = $\frac{expenditure\ gap}{MPN\ economy}$ ......................... 1

cutting taxes = $\frac{100}{0.8}$    

solve we get cutting taxes

cutting taxes = $125 billion

so cutting taxes by $125 billion