Suppose Y (output) = 4,000, T (taxes) = tY where t, the marginal tax rate, is 0.3, the marginal propensity to consume, c, is 0.8, and government spending, G = 1,000. This is a closed economy. Now G increases and as a result Y also increases, such that, after the income change, the budget is exactly balanced. Then, by how much must G have increased?
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Keynesian cross and the multiplier has come up 167 times in 7 exams since 2006.
This question is on Government spending and tax multipliers, part of Keynesian cross and the multiplier in Macroeconomics.
The effect on income of changes in government spending, lump-sum taxes, transfers and income taxes.
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Question from the JNU SIS 2019 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.