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algol13
3 years ago
7

Suppose a hypothetical economy is currently in a situation of deficient aggregate demand of $16 billion. Four economists agree t

hat expansionary fiscal policy can increase total spending and move the economy out of recession, but they are debating which type of expansionary policy should be used. Economist A believes that the government spending multiplier is 4 and the tax multiplier is 2. Economist B believes that the government spending multiplier is 2 and the tax multiplier is 8.
Required:
Compute the amount the government would have to increase spending to close the output gap according to each economist's belief.
Business
1 answer:
GarryVolchara [31]3 years ago
5 0

Answer:

Economist A

Government spending multiplier $4billion

Tax multiplier $8billion

Economist B

Government spending multiplier $8billion

Tax multiplier $2billion

Explanation:

Computation for the amount the government would have to increase spending to close the output gap according to each economist's belief

ECONOMIST A

Government spending multiplier=16/4

Government spending multiplier=$4billion

Tax multiplier=16/2

Tax multiplier=$8billion

ECONOMIST B

Government spending multiplier=16/2

Government spending multiplier=$8billion

Tax multiplier=16/8

Tax multiplier=$2billion

Therefore the amount the government would have to increase spending to close the output gap according to each economist's belief are :

ECONOMIST A

Government spending multiplier=$4billion

Tax multiplier=$8billion

ECONOMIST B

Government spending multiplier=$8billion

Tax multiplier=$2billion

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