Assume That the MPC Is 0

Multiple Choice

Assume that the MPC is 0.8. If government purchases increase by $500, equilibrium output ________; and if taxes increase by $500, equilibrium output ________.

A) increases by $2,500; decreases by $2,000
B) increases by $4,000; decreases by $3,000
C) increases by $2,000; decreases by $1,000
D) increases by $1,600; decreases by $1,200