Determine the marginal propensity to consumed

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1-Suppose that real GDP is $500 and potential GDP is $1,000, while the marginal propensity to consume is 0.9. If the government is going to engage in government spending and does not impose taxes, how much should it change spending? Increase or decrease

2-Suppose that real GDP is $1,500 and potential GDP is $1,200, while the marginal propensity to consume is 0.8. If the government is going to engage in government spending and change taxes. If the government increases taxes by $20, how much will it need to change spending? Increase or decrease?

Reference no: EM13183965

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