Suppose that the marginal propensity to consume
is 0.80.
a. If the government increases spending by $10
billion, what is the change in equilibrium real
GDP?
b. If the government increases taxes by $10 billion,
what is the change in equilibrium real
GDP?
c. If the government increases taxes by
$10 billion
at the same time that it increases
spending by $10 billion, what is the change in
equilibrium real GDP?