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Suppose that real GDP is currently $17.1 trillion, potential GDP is $17.4 trillion, the government purchases multiplier is 2, and the tax multiplier is -1.6.
a. Holding other factors constant, by how much will government purchases need to be increased to bring the economy to equilibrium at potential GDP?
b. Holding other factors constant, by how much will taxes have to be cut to bring the economy to equilibrium at potential GDP?
c. Construct an example of a combination of increased government spending and tax cuts that will bring the economy to equilibrium at potential GDP.
Consumer Buying Behavior
System A will generate about $10,000 income and system B will generate about $9,000. Each system will be depreciated using straight line depreciation over their respective lives and company is in a 30% tax bracket. Which system should you choose?
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