Problem
Two identical countries, CountryA and Country B, can each be described by a Keynesian-cross model. The MPC is .9 in each country.
i. How much is the government purchases multiplier for each country?
ii. How much is the tax multiplier for each country?
iii. Country A decides to increase spending by $2 billion, while Country B decides to cut taxes by $2 billion. In which country will the new equilibrium level of income be greater? Explain.