Suppose the real GDP is in equilibrium at full employment and the MPC is .80. If government wants to increase its purchase of goods and services by $16 billion without changing equilibrium real GDP, taxes should be
A. reduced by $20 billion.
B. increased by $16 billion.
C. reduced by $16 billion.
D. increased by $20 billion.
Answer: D
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What will be an ideal response?
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