Question

. Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $50 billion to the left. The government wants to change its spending to offset this decrease in demand. The MPC is 0.80. Suppose the effect on aggregate demand from a change in taxes is 4/5 the size of the change from government expenditures. There is no crowding out. What should the government do if it wants to offset the decrease in aggregate demand?

Answer 1

Answer

the correct answer is

Reduce taxes by $5.56 billion dollars. Increase expenditures by $5.56 billion dollars.

good luck ❤