Suppose the governments of two different economies

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Suppose the governments of two different economies, economy J and economy K, implement a permanent tax cut of the same size. The marginal propensity to consume (MPC) in economy J is 0.85 and the MPC in economy K is 0.8. The economies are identical in all other respects.

The tax cut will have a larger impact on aggregate demand in the economy with the (Smaller MPC or larger MPC)

Reference no: EM13977215

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