Assume That the MPC Is 0

Multiple Choice

Assume that the MPC is 0.8. If government spending increases by $200, equilibrium output ________; and if taxes increase by $200, equilibrium output ________.

A) increases by $1,000; decreases by $800
B) increases by $800; decreases by $600
C) increases by $1,000; decreases by $1,000
D) increases by $1,600; decreases by $1,200