Calculate the transfer multiplier

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Reference no: EM13204136

Suppose households consume 80% of their disposable income. The government is considering three actions to help increase GDP: increasing government spending, cutting taxes, or increasing fixed transfer payments.

If the government increases transfer payments by $100 billion, by how much will real GDP increase? (Express your answer in billions of dollars.)

Hint: First, calculate the transfer multiplier. Remember: transfers = negative taxes.

Reference no: EM13204136

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