Answer:
a)Tax cut = $6.25 billion.
The amount by which government spending would rise to shift the aggregate demand curve rightward by $25 billion? "" Is $5 BILLIONS"""
b)INCREASE GOVERNMENT SPENDING by $25 billion.
INCREASE TAXES by $25 billion.
Explanation:
a.)To calculate the value of spending value, the formula below is used.
multiplier spending=1/1-MPC
multiplier spending==1/1-0.8=5
Tax cut Multiplier = MPC/1-MPC
Tax cut Multiplier = 0.8/1 -0.8
Tax cut Multiplier = 4
The required government spending = 25/3 =5
Tax cut = $6.25
The answer is increase in spending=25 billion, increase in taxes= 25$billion.The spending will increase income=25x5=$125billion.The tax increase will reduce income=25x4=$100billion.In sum the income will increase=125-100=$25billion.
b) The one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt is to
INCREASE GOVERNMENT SPENDING by $25 billion.
INCREASE TAXES by $25 billion.
