In the short-run Keynesian model, if the mpc equals 0.8, then to increase aggregate spending by $20 billion at any output level, government spending must be increased by ______ or net taxes must be decreased by _____.

Question

Quizplus · Accepted Answer

If government spending is increased by $20 billion, aggregate spending goes up by $20 billion. Tax cuts increase spending but they also increase savings. In order for households to increase aggregate spending by $20 billion, they need to receive more than $20 billion in tax cuts.

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