Suppose That Congress Allocates $1 Billion to Clean Up After

Multiple Choice

Suppose that Congress allocates $1 billion to clean up after the hurricanes of 2005.It also raises taxes by $1 billion to keep the deficit from growing.If the marginal propensity to consume is 0.9,what is the effect on equilibrium GDP?

A) GDP does not change.
B) GDP increases by $10 billion.
C) GDP increases by $900,000.
D) GDP increases by $1 billion.