Suppose That Congress Allocates $1 Billion to Clean Up After

question 84

Multiple Choice

Suppose that Congress allocates $1 billion to clean up after the hurricanes of 2005.It also raises taxes by $1 billion to keep the deficit from growing.If the marginal propensity to consume is 0.9,what is the effect on equilibrium GDP?

• A)GDP does not change.
• B)GDP increases by $10 billion.
• C)GDP increases by $900,000.
• D)GDP increases by $1 billion.

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