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maks197457 [2]
2 years ago
13

Suppose the government increases taxes by ​$11110 billion and the marginal propensity to consume is 0.990. By how will equilibri

um GDP​ change?
Business
1 answer:
Helen [10]2 years ago
5 0

Answer:

- $1,099,890 billion.

Explanation:

Marginal propensity to consume (MPC) = 0.990

Tax multiplier = - MPC ÷ (1 - MPC)

= - 0.990 ÷ (1 - 0.990)

= - 9 9

change in GDP = Change in taxes × Tax multiplier

                         = $11110 × (-99)

                         = - $1,099,890

the minus sign shows a decrease

Hence, the change in equilibrium GDP is - $1,099,890 billion.

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