If MPC = 0.75, a $40 billion decrease in government purchases would have what size effect on the "first round" of changed consumption, and what effect on AD?
A) reduce "first round" consumption by $160 billion; reduce AD by $640 billion
B) reduce consumption by $120 billion; reduce AD by $480 billion
C) reduce consumption by $40 billion; reduce AD by $160 billion
D) reduce consumption by $30 billion; reduce AD by $160 billion
Correct Answer:
Verified
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