2. Calculate and graph what happens to T, C, AD, GDP, and Prices if the President raises taxes by 100 billion and the MPC = .80.
3. Calculate and graph what happens to AD, GDP and Prices if the government raises both taxes and government spending by 200 billion and the MPC is equal to .75.
This material may consist of step-by-step explanations on how to solve a problem or examples of proper writing, including the use of citations, references, bibliographies, and formatting. This material is made available for the sole purpose of studying and learning - misuse is strictly forbidden.Solution:
In this, the G would increase by $100 billion.
Changes in AD are calculated using Government spending multiplier.
Change in AD = Change in G * (1/(1- MPC)) = $100 billion * (1/(1 – 0.80)) = $500 billion.
This new AD curve would intersect the aggregate supply curve at a further point since the AD curve would shift to the right. This would also cause the GDP and prices...