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If Short-Run Equilibrium Output Equals 10,000, the Income-Expenditure Multiplier Equals

Question 17

Multiple Choice

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then taxes must be ________ by approximately ________ to eliminate any output gap.


A) decreased; 250
B) decreased; 200
C) increased; 250
D) increased; 200

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