Answer:
1. $ 16 million
2. $ 12 million
3. B. spend ?$4 million on highways.
Step-by-step explanation:
1. Change in Y = Change in G/(1 - MPC) = 4million/(1 - 0.75) = $ 16 million
Y increases by $ 16 million.
2. Change in Y = - MPC x Change in Taxes/(1 - MPC) = - 0.75 x - 4 million/0.25 = $ 12 million
Decrease in taxes increases Y by $ 12 million.
3. B. spend ?$4 million on highways.
This increases output by more amount.