Aggregate demand curve shift

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Suppose a country decreases income taxes by $100 billion, and this leads to an increase in consumption spending of $90 billion. Suppose the multiplier is 1.5 and the economy's real GDP is $5,000 billion.

a) In which direction will the aggregate demand curve shift and by how much?

b) Explain why the change in real GDP is likely to be smaller than the shift in the aggregate demand curve.

Reference no: EM132265783

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