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Suppose an Economy Is Producing Real GDP of $300 Billion

Question 374

Multiple Choice

Suppose an economy is producing real GDP of $300 billion. The potential output is equal to $400 billion, and the marginal propensity to consume is equal to 0.80. The government should _____ taxes by _____ to bring the economy to potential output.


A) raise; $25 billion
B) cut; $33.33 billion
C) raise; $33.33 billion
D) cut; $25 billion

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