Although President Roosevelt increased government spending during the great depression, the great stimulus id not come...

Although President Roosevelt increased government spending during the great depression, the great stimulus id not come until World War II. Between 1940 and 1945 government expenditures on national defense increased significantly. For example, national defense spending grew from a yearly rate of $3 billion in 1940 to $15 billion in 1941, $53 billion in 1942, and to $87 billion in 1943. To finance the war, the government had to increase taxes. Assume the MPC is .9 All the following problems require mathematical calculations. a) What was the effect of the increase in government expenditures on from 1941 to 1942 on AD? b) If income taxes increased by $4 billion, what happened to the increase in AD described in part (b)? c) If the government increased transfer payments by $4 billion, how would it affect the economy? d) If the government had increased income taxes by $4 billion and transfer payments by $4 billion, how would it have affected AD?

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Rahul Sunny answered 2 years ago

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