suppose that the economy is in a long-run equilibrium at a price level of 100 and full-employment real gdp of $500 billion. an expansion occurs resulting from a $50 billion increase in aggregate demand. in order to restore the economy to full employment given a mpc of 0.50, taxes would need to:

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16-12-2022
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suppose that the economy is in a long-run equilibrium at a price level of 100 and full-employment real gdp of $500 billion. an expansion occurs resulting from a $50 billion increase in aggregate demand. in order to restore the economy to full employment given a mpc of 0.50, taxes would need to:

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rafikiedu08 rafikiedu08 · Answer 1 · 2022-12-21T03:30:27+01:00

In order to restore the economy to full employment given an MPC of 0.50, taxes would need to $50 Billion.

Since the real GDP at full employment is $500 billion, an expansion of $50 billion will result in an increase in demand of the same amount. As MPC = 0.5. Multiplier = 1/1-MPC =1/1-0.5 =1/0.2 = 2 as a result. Therefore, the government's purchases would have to be reduced by $50 billion ($100/2). $50 billion is the correct answer, thus.

An economic scenario known as full employment occurs when all of the labor resources are being utilized as effectively as feasible. The idea that an increase in personal consumption spending happens in tandem with an increase in disposable income is quantified by the marginal propensity to consume.

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