Generate the expected increase aggregate demand

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In 2009 Congress and President Obama passed the Stimulus Act, totaling approximately $787 Billion in fiscal policy. Assuming that 62% went to Government Spending and 38% to tax cuts, and further assume no crowding out and that the MPC is .54, answer the following questions:

1. By how much in Aggregate Demand is the stimulus of 2009 expected to generate? Remember the Government spending multiplier is 1/1-mpc * G and the Tax Cut multiplier is mpc/1-mpc * T (ignore the negative sign since we are interested in the tax cut and not tax increases).

2. Check the BLS.gov website (or access it directly through www.econsources.com) and examine the Real GDP (in chained dollars) data and evalulate how long (in months or quarters) it took the US economy generate the expected increase in Aggregate Demand you derived in question 1?

Reference no: EM132501341

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