Suppose that the marginal propensity to consume is 0.8.
a. If the government increases spending by $100 million, what is the change in output?
b. If the government increases taxes by $100 million, what is the change in output?
c. If the government increases taxes by $100 million at the same time that it increases spending by $100 million (so the budget deficit does not increase), what is the change in output?
This question was answered on: Jul 11, 2017
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