The Government Increases Both Its Expenditures and Taxes by $400

question 76

Multiple Choice

The government increases both its expenditures and taxes by $400 billion.There is no crowding out and no accelerator effect.Aggregate demand shifts by $400 billion.Which of the following is consistent with how far aggregate demand shifts?

• A)MPC = 1/2,and the effects of the increase in taxes is 1/2 as strong as the change in government expenditures.
• B)MPC = 2/3,and the effects of the increase in taxes is 2/3 as strong as the change in government expenditures
• C)MPC = 3/4,and the effects of the increase in taxes is 3/4 as strong as the change in government expenditures
• D)All of the above are correct.

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