Question

If MPC= 0.6. If the government increases expenditures by $200 billion, what is the impact of AD or SRAS, on P and Y? If the government decreases taxes by $200 billion what is the effect on AD or AS on P and Y?
Take a shot, what do you think?
Hint. The government spending multiplier in this example is 1/MPS = 1/.4 = 2.5. The taxation multiplier is the government multiplier minus one = 1.5

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