Problem 1: Suppose that the economy starts at equilibrium and the mpc = 0.75. What would be the effect of a $300 increase in government spending once all the rounds of the multiplier process are complete?
Problem 2: Suppose that the economy starts at equilibrium and the mpc = 0.8. What would be the effect of a 300 increase in taxes once all the rounds of the multiplier process are complete?
Problem 3: Use your answer in (1) and (2) above to show that:
"When taxes and government spending both increase by the same amount (or decrease by the same amount), the size of the deficit or surplus the government had before remains the same."