How does increases real wealth significantly

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Reference no: EM131774719

Question: Assume the Australian economy is initially in a long run equilibrium, with real GDP equal to $1.5 trillion. Furthermore, the government purchases multiplier is 2.0 and the tax multiplier is -1.5.

Suppose, now, that there is a global stock market boom which increases real wealth significantly, shifting aggregate demand (AD) to the right, and increasing real output, in the short run, by $60 billion.

Based on the above information, complete the following statements (insert 'increase' or 'decrease' all in lowercase in the first blank space and the appropriate numerical value, rounded to the nearest whole number, in the second blank space) :

If the government decides to change government purchases (G) to offset the $60 billion short-run rise in output, but leaves the tax structure unchanged, then it should _____ G by _____ billion dollars.

If the government decides to change taxes (T) to offset the $60 billion short-run rise in output instead, leaving G unchanged, then it should _____ T by _____ billion dollars.

Reference no: EM131774719

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