Suppose in a simple economy with no foreign sector, the MPC is equal to 0.8. If the government increased government spending by $30 m i l l i o n, a n d i t s i m u l t a n e o u s l y r a i s e d t a x e s b y$ 30 million, how much will be the change in output (∆Y)?

Output will increase by $15 million

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Output will increase by $30 million

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There will be no change in output

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Output will decrease by $30 million

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Solution

The correct option is B
Output will increase by $30 million

This is the case of a balanced budget multiplier. If an increase in government spending is matched by an equal increase in taxes, the increase in output will be equal to the increase in G.

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Suppose in a simple economy with no foreign sector, the MPC is equal to 0.8. If the government increased government spending by 30million,anditsimultaneouslyraisedtaxesby30 million, how much will be the change in output (∆Y)?

The correct option is B Output will increase by $30 million This is the case of a balanced budget multiplier. If an increase in government spending is matched by an equal increase in taxes, the increase in output will be equal to the increase in G.

Suppose in a simple economy with no foreign sector, the MPC is equal to 0.8. If the government increased government spending by $30 m i l l i o n, a n d i t s i m u l t a n e o u s l y r a i s e d t a x e s b y$ 30 million, how much will be the change in output (∆Y)?

The correct option is B
Output will increase by $30 million

This is the case of a balanced budget multiplier. If an increase in government spending is matched by an equal increase in taxes, the increase in output will be equal to the increase in G.