Assume that we want to drive our economy out of recession by generating a $400 billion change in real GDP. The MPC is 0.80. Which of the following policy prescriptions would generate the targeted $400 billion change in income?
A. $120 billion increase in government spending and $50 billion increase in tax revenue.
B. $140 billion increase in government spending and $70 billion increase in tax revenue.
C. $160 billion increase in government spending and $120 billion increase in tax revenue.
D. $220 billion increase in government spending and $100 billion increase in tax revenue.
Answer: A
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