Business, 02.07.2019 19:10 jaqwannewsome

currently, a government's budget is balanced. the marginal propensity to consume is 0.80. the government has determined that each additional $10 billion in new government debt it issues to finance a budget deficit pushes up the market interest rate by 0.20 percentage 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 $1 billion. 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 $150 billion. assuming that there are no direct expenditure offsets to fiscal policy, calculate the increase in government expenditures necessary to close the recessionary gap. (hint: how much private investment spending will each $10 billion increase in government spending crowd out? )

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