Consumption Function: C=$300 Billion + 0.9Y The cumulative change in total spending if the government increases...
Consumption Function: C=$300 Billion + 0.9Y
The cumulative change in total spending if the government increases purchases of goods and services by $100 million AND at the same time increases taxes by $100 million will be:
| a. |
$0 |
|
| b. |
$100 million |
|
| c. |
$90 million |
|
| d. |
$1 billion |
Homework Answers
ANswer
Option b
$100 million
The increase in government purchases and taxes is the same; it means it is a balanced budget policy; a balanced budget has a multiplier of 1. It means it increases the total spending by the same amount.
increase in total spending =$100 billion
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