Suppose the government, in an effort to avoid an increase in the deficit, votes for a budget neutral tax cut policy. Assume the marginal propensity to consume (MPC) is equal to 0.9 and taxes are cut by $10 billion. Round answers to the nearest billion, and specify decreases as a negative number. By how much will government spending change? change in government spending: $ -10 What is the resulting change in the equilibrium level of real GDP? -100 change in equilibrium level of real GDP: $ Incorrect billion billion.
Suppose the government, in an effort to avoid an increase in the deficit, votes for a budget neutral tax cut policy. Assume the marginal propensity to consume (MPC) is equal to 0.9 and taxes are cut by $10 billion. Round answers to the nearest billion, and specify decreases as a negative number. By how much will government spending change? change in government spending: $ -10 What is the resulting change in the equilibrium level of real GDP? -100 change in equilibrium level of real GDP: $ Incorrect billion billion.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter18: Debates In Macroeconomics Over The Role And Effects Of Government
Section: Chapter Questions
Problem 3QP
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Transcribed Image Text:Suppose the government, in an effort to avoid an increase in the deficit, votes for a budget neutral tax cut policy. Assume the
marginal propensity to consume (MPC) is equal to 0.9 and taxes are cut by $10 billion. Round answers to the nearest billion,
and specify decreases as a negative number.
By how much will government spending change?
change in government spending: $
-10
What is the resulting change in the equilibrium level of real GDP?
-100
change in equilibrium level of real GDP: $
Incorrect
billion
billion.
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