Question

(a) how much fiscal restraint occurred between 1931 and 1933? $ billion (b) by how much did this policy reduce aggregate demand if the mpc was 0.88? $ billion

Answer 1

hi your question is incomplete attached to the answer is the complete question

answer : A ) $6 billion

B) -$50 billion

Step-by-step explanation:

A) The fiscal restraint that occurred between 1931 and 1933 from the given graph below is = +2 - (-4)

= + 2 + 4 = $6 billion

B) By how much did this policy reduce aggregate demand if the MPC was 0.88

using this formula =

`(1)/(1-mpc) * fiscal restraint`

=
`(1)/(1 - 0.88 ) * 6` =
`(1)/(0.12) * 6` = $49.99 ≈ $50 billion

Answer 2

a. Structures deficit decreased from $4.5 billion to a surplus of $2 billion, therefore the amount of fiscal restraint that occured between 1931 and 1933 is $6.5 billion.

b. Using the formula

Change in aggregate demand = 1/1- mpc x change in fiscal restraint

= 1/1-0.8×(-6.5)

= 1/0.2x(-6.5)

= 5x-6.5

= -$32.5 billion