Government Spending and Transfer Multipliers
Suppose the marginal propensity to consume is 0.9. If the government increases transfer payments by $300 billion while simultaneously reducing government purchases by $300 billion, what is the resulting net change in aggregate demand?
A
Aggregate demand decreases by $300 billion
B
Aggregate demand increases by $270 billion
C
Aggregate demand remains unchanged
D
Aggregate demand decreases by $30 billion
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