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Assume That the Marginal Propensity to Consume Is 0

Question 196

Multiple Choice

Assume that the marginal propensity to consume is 0.8. Government purchases of goods and services increase by $100 billion, financed by a $100 billion tax increase. Real GDP will:


A) expand by $100 billion.
B) contract by $100 billion.
C) expand by $500 billion.
D) expand by $400 billion.

Correct Answer:

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