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Let a Small Closed Economy Consist of C = a

Question 8

Multiple Choice

Let a small closed economy consist of C = a + b1 - T) Y, T = T0, I = I0, and G = G0. The balanced budget multiplier for a balanced budget increase in government spending and autonomous taxes is


A) 1/[1 - b].
B) -b/[1 - b].
C) 1/[1 + b].
D) -b/[1 + b].
E) 1.

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