Currently, a​ government's bud

timer Asked: Apr 10th, 2016

Question description

Currently, a​ government's budget is balanced. The marginal propensity to consume is 0.800.80. The government has determined that each additional ​$1010billion in new government debt it issues to finance a budget deficit pushes up the market interest rate by 0.200.20percentage points. It has also determined that every 0.10 ​(​one-tenth​) ​percentage-point change in the market interest rate generates a change in planned investment expenditures equal to ​$44billion.​ Finally, the government knows that to close a recessionary gap and take into account the resulting change in the price​ level, it must generate a net rightward shift in the aggregate demand curve equal to ​$250250billion. Assuming that there are no direct expenditure fiscal​ policy, calculate the increase in government expenditures necessary to close the recessionary gap. ​ 

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