Describe an adjustment process using ad as analysis

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Question: Assume that economy starts at equilibrium and the mpc = 0.75. Find the effect of a $300 increase in government spending once all the rounds of the multiplier process are complete?
To compute the change in equilibrium output, the following expression could be used:
Y = G (1/ 1-mpc); this should be the Delta symbol
Assume that the economy starts at equilibrium and the mpc = 0.8. What would be the effect of a 300 increase in taxes once all the rounds of the multiplier process are complete?

"When taxes and government spending both increase by the same amount (or decrease by the same amount), the size of the deficit or surplus the government had before remains the same."
What would you say about the multiplier?

Suppose the economy is in a recession. Explain an adjustment process using AD AS analysis that will ensure that the economy will return to full employment. How can the government speed up this process?

Reference no: EM1373765

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