Assume the marginal propensity to consume is .8 . To offset a fall in
Assume the marginal propensity to consume is .8 . To offset a fall in income of 1,000, the government should
a. increase taxes by $200.
b. raise taxes by $250.
c. increase government spending and taxes by 1,000.
d. cut taxes by $200.
e. both c and d.
ANSWER
C
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