Potential real gdp and actual real gdp

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Reference no: EM131169211

Assume that a hypothetical economy with an MPC of 0.8 is experiencing boom with the gap of 25 billion between potential real GDP and actual real GDP.

a) How much would the government spending have to cut to decrease real GDP to the potential real GDP level?

b) How large a tax increase would be needed to achieve the same decrease in real GDP?

Reference no: EM131169211

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