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Government wanted to reach the natural level of gdp

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The economy is in recession: real GDP is $5 billion. Real GDP is $1 billion short of the natural level of GDP. The government wants to move the economy to its natural level of GDP using fiscal policy. The marginal propensity to consume is ¾ and you can assume there is no crowding out. If instead the government wanted to reach the natural level of GDP with a tax cut, how large would that tax need be?

Reference no: EM132506408

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