If Real GDP Is $300 Billion Below Potential GDP and the Tax

question 182

Essay

If real GDP is $300 billion below potential GDP and the tax multiplier equals -1.5,then how much would the government need to change taxes to bring the economy to equilibrium at potential?

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Definitions:

Required Reserves

are the minimum amounts of funds that banks must hold in reserve against deposits, as mandated by central banks.

Federal Funds Target Rate

The interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight, guided by the Federal Reserve.

Depository Institutions Deregulation

The process of removing or easing government regulations on banks and other depository institutions to enhance efficiency and competitiveness.

Money Creation

The process by which the money supply of a country is increased through activities primarily conducted by its central bank.