Describe one possible combination of government spending

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Assume that a hypothetical economy with an MPC of .8 is experiencing severe recession. By how much would government spending have to increase to shift the aggregate demand curve rightward by $25 billion? How large a tax cut would be needed to achieve the same increase in aggregate demand? Why the difference? Describe one possible combination of government spending increases and tax decreases that would accomplish the same goal.

Reference no: EM1350151

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