Assume that we want to drive our economy out of recession by generating a $400 billion change in real GDP.The MPC is 0.8.Which of the following policy prescriptions would generate the targeted $400 billion change in income?
A) $120 billion increase in government spending and $50 billion increase in tax revenue.
B) $140 billion increase in government spending and $70 billion increase in tax revenue.
C) $160 billion increase in government spending and $120 billion increase in tax revenue.
D) $220 billion increase in government spending and $100 billion increase in tax revenue.
E) $400 billion increase in government spending and $300 billion increase in tax revenue.
Correct Answer:
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