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Remember the government spending multiplier

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Reference no: EM132415212

In 2009 Congress and President Obama passed the Stimulus Act, totalling approximately $787 Billion in fiscal policy. Assuming that 62% went to Government Spending and 38% to tax cuts, and further assume no crowding out and that the MPC is .54, answer the following questions:

1. By how much in Aggregate Demand is the stimulus of 2009 expected to generate? Remember the Government spending multiplier is 1/1-mpc * G and the Tax Cut multiplier is mpc/1-mpc * T (ignore the negative sign since we are interested in the tax cut and not tax increases).

Reference no: EM132415212

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