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Suppose that marginal propensity to consume is equal to 0.9, and the government increases its spending by $200 billion. This new increase in spending is financed by a fresh increase in taxes equal to $200 billion. As a result of this, GDP will:

a. not change at all.
b. decrease by $200 billion.
c. increase by $2,000 billion.
d. increase by $200 billion.
e. increase by $1,800 billion.

User MariaL
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1 Answer

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Answer:

D. Increase by $200 billion.

Step-by-step explanation:

Gross Domestic Product is basically equal to what the government spends.

User Herman Tran
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