The effects of the increased government spending

Reference no: EM131136291

Suppose that GDP is $40 billion below its potential level. It is expected that next-period GDP will be $20 billion below potential and that two periods from now it will be back at its potential level. You are told that the multiplier for government spending is 2 and that the effects of the increased government spending are immediate. What policy actions can be taken to put GDP back on target each period?

Reference no: EM131136291

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