Spending Multiplier with Proportional Taxes
In an economy, the marginal propensity to consume (MPC) is 0.75 and the income tax rate is 20 percent. If investment spending decreases by $60 billion, what is the resulting change in equilibrium real GDP?
A
Decrease by $150 billion
B
Decrease by $180 billion
C
Decrease by $240 billion
D
Decrease by $60 billion
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