Balanced budget multiplier


Please assist with the given problem.

Problem: Assume the government raises taxes by $20 billion and at the same time increases government spending by $20 billion. If the marginal propensity to consume (mpc) = 0.9 and everything else stays constant, according to the expenditure approach we can surmise that the level of income will:

a. increase by $200 billion

b. decrease by $200 billion

c. decrease by $20 billion

d. increase by $20 billion

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Accounting Basics: Balanced budget multiplier
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