Spending is financed by a fresh increase in taxes equal

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Suppose that marginal propensity to save is equal to 0.25, and the government increases its spending by $200 billion. This new increase in spending is financed by a fresh increase in taxes equal to $200 billion. As a result of this, GDP will:

a. not change at all.

b. decrease by $200 billion.

c. decrease by $800 billion.

d. increase by $200 billion.

e. increase by $800 billion.

Reference no: EM13984275

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