Suppose That the Government Allocates $1 Billion for New Roads

question 54

Multiple Choice

Suppose that the government allocates $1 billion for new roads.It also raises taxes by $1 billion to keep the deficit from growing.If the marginal propensity to consume = 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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