Explain what effect fiscal policy would have on real gdp

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Suppose real GDP is $100 billion below potential and the government implements an expansionary fiscal policy with the intention of eliminating the output gap. The fiscal policy consists of a $100 billion increase in government purchases and a $100 billion increase in taxes. Assume the MPC is .8 Explain what effect this fiscal policy would have (if any) on real GDP (quantitative), the rate of inflation (qualitative) and the unemployment rate (qualitative).

Reference no: EM131170657

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