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Suppose in an effort to stimulate aggregate demand

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Given: Suppose in an effort to stimulate aggregate demand, the government mails tax rebate checks to all household, totaling $50 billion for the economy as a whole. Ignore crowding-out effect.

A) If the marginal propensity to consume (MPC) is 0.90, by how much would you expect these tax rebates to initially increase aggregate demand? Show your calculations step-by-step.

B) TRUE OR FALSE: Holding other things constant, a higher MPC is bound to yield a larger impact on the initial demand.

C) Including the multiplier effect, what is the total effect of these tax rebates on the aggregate demand. Show your calculations step-by-step

D) TRUE OR FALSE: Holding other things constant, a higher MPC is bound to yield a lower impact on the total demand.

E) How does the total effect of this policy compare to the total effect of a $50 billion increase in government spending? Show your calculations step-by-step

Reference no: EM131739026

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