By how much will taxes need to be cut to bring the economy

Reference no: EM132139630

Question: Suppose that real GDP is currently $17.1 trillion, potential GDP is $17.4 trillion, the government purchases multiplier is 2, and the tax multiplier is -1.6.

• Holding other factors constant, by how much will government purchases need to be increased to bring the economy to equilibrium at potential GDP?

• Holding other factors constant, by how much will taxes need to be cut to bring the economy to equilibrium at potential GDP?

• What is an example of a combination of increase in government purchases and tax cuts that would have the desired effect of bringing the economy to equilibrium at potential GDP?

Reference no: EM132139630

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