Assume that all taxes are lump-sum,net exports = 0,and the marginal propensity to consume is 0.8.Then,if investment and taxes were each to fall by $100 million,the equilibrium level of income would

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In this scenario, both investment and taxes are decreasing by the same amount, so the overall effect on aggregate demand will be a decrease. The multiplier effect will magnify this decrease, but because the marginal propensity to consume is 0.8 (meaning that consumers spend 80 cents of every additional dollar they receive), the multiplier will not be as large as it would be if the MPC were closer to 1. Therefore, the equilibrium level of income will fall by the same amount as the initial decrease in investment and taxes, which is $100 million.

Assume That All Taxes Are Lump-Sum,net Exports = 0,and the Marginal