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Changes in government spending and taxation

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Reference no: EM131918350

Let's say that our country's Gross Domestic Product is at $15 billion (this year). We also know that we currently have unemployment and that we would have full employment if our Gross Domestic Product were to reach $18.5 billion. If the Keynesian multiplier is 7, then what would Keynesian economists recommend regarding changes in government spending and taxation?

  • We need to decrease government spending by $.4 billion.
  • We need to decrease taxes by $.4 billion.
  • We need to increase government spending by $.4 billion.
  • We need to increase government spending by $.5 billion.
  • We need to decrease government spending by $2 billion.

Reference no: EM131918350

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