Suppose that the MPC is 0.8, while the sum of planned
investment, government purchases, and net exports is $500 billion. Suppose also
that government budget is in balance.
a.What is the sum of saving and net taxes when desired
spending equals real GDP? Explain.
b.What is the value of the multiplier?
c.Explain why the multiplier is related to the slope of the
consumption function.
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