Shifting AD curve rightward with tax cut?

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How much of a tax cut is necessary if mpc is .75 & want to shift AD rightward by $40 billion? Round answer to 2 decimal places.

Nov 7th, 2014

Initial increase in consumption = .75*40 billion = 3billion 

Total increase in AD = 3 billion * multiplier (multiplier = 1/(1-.75) = 4) = 12 billion 

Tax Cut = 12billion *.25/ .75=  4 billion



Nov 7th, 2014

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Nov 7th, 2014
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