Suppose That the Marginal Propensity to Consume in Montavada Is

Essay

Suppose that the marginal propensity to consume in Montavada is 0.75.
(a) If taxes were reduced by $1,000 in Montavada, by how much would equilibrium output change?
(b) If government spending were increased by $1,000 in Montavada, by how much would equilibrium output change?
(c) Explain why a tax cut of $1,000 would have less effect on the economy of Montavada than an increase in government spending of $1,000.