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Yesterday, 18:41

Suppose that marginal propensity to consume is equal to 0.9, and the government increases its spending by $200 billion. This new increase in spending is financed by a fresh increase in taxes equal to $200 billion. As a result of this, GDP will:

a. not change at all.

b. decrease by $200 billion.

c. increase by $2,000 billion.

d. increase by $200 billion.

e. increase by $1,800 billion.

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Answers (1)
  1. A
    Yesterday, 19:10
    0
    D. Increase by $200 billion.

    Explanation:

    Gross Domestic Product is basically equal to what the government spends.
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