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Assume a marginal propensity to save

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The expiration of the FICA payroll tax cut of January 1, 2013, raised taxes by $110 billion per year. Assume a marginal propensity to save (MPS) of 0.20.

a. By how much would consumer spending decrease initially?

b. What is the ultimate decline in aggregate demand?

Reference no: EM132330947

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