What happens to taxes-consumption-aggregate demand

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Reference no: EM13801148

Calculate and graph what happens to T(taxes), C(consumption), AD(aggregate demand), GDP, and Prices if the President raises taxes by 100 billion and the MPC = .80.

solution. AD = 1/(1-0.80) = 5

increase in spending = 100/5 = 20 billion

government will increase spending by 20 billion

Reference no: EM13801148

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