In the short-run Keynesian model, if the mpc equals 0.8, then to decrease aggregate spending by $30 billion at any output level, government spending must be decreased by ______ or net taxes must be increased by _____.

Question

Quizplus · Accepted Answer

If government spending is decreased by $30 billion, aggregate spending goes down by $30 billion. Tax hikes decrease spending but they also decrease savings. In order for households to decrease aggregate 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