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Suppose Government Increases Its Purchases by $100 Billion

Question 102

Multiple Choice

Suppose government increases its purchases by $100 billion.Why will this have a greater effect on real GDP than a $100 billion reduction in net taxes?  


A)  because some of the income that consumers gain from the tax reduction will be saved rather than spent 
B)  because some of the income that consumers gain from the tax reduction will be spent on services rather than on products 
C)  because some of the income that consumers gain from the tax reduction will be spent on goods made in foreign countries 
D)  because the consumers' MPC is higher than the government's MPC

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