Assume an economy consisting of consumption sector

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Assume an economy consisting of a consumption sector, a government sector, a foreign sector, and a business investment sector. (C + I + G + X = GDP). Also assume that the Marginal Propensity to Save (MPS) = 0.2. If government spending increases by $70B and taxes also increase by $70B.

A) Consumption will fall by $56B, but GDP will increase by $70B

B) Consumption will fall by $70B and GDP will remain the same

C) Consumption will fall by $350B and GDP will increase by $350 so the net effect is $0

D) GDP will increase $350B

Reference no: EM131071617

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