In the short-run Keynesian model, if the mpc equals 0.8, then to decrease planned aggregate spending by $30 billion at any output level, government spending must be decreased by ________ or net taxes must be increased by ________.
A)$30 billion; $30 billion
B)more than $30 billion; more than $30 billion
C)less than $30 billion; less than $30 billion
D)$30 billion; more than $30 billion

Question

Quizplus · Accepted Answer

If government spending is decreased by $30 billion, planned aggregate spending goes down by $30 billion. Tax hikes decrease spending but they also decrease savings. In order for households to decrease planned spending by $30 billion, their net taxes need to rise by more than $30 billion.

In the Short-Run Keynesian Model, If the Mpc Equals 0