Question

Use the following to answer questions:

Y	T	Yd	C
500	175	325	340
600	200	400	400
700	225	475	460
800	250	550	520
900	275	625	580

(i)If the MPE is 0.9, a $10 million increase in taxes will change the GDP in the following manner:

(a)increase GDP by $10 million (b)decrease GDP by $90 million

(c)decrease GDP by $9 million (d)increase GDP by $90million

(ii)If the MPE =0.8, then a $5 billion increase in taxes and a $5billion increase in government spending will change GDP in the following manner:

(a)increase GDP by $5 billion (b)decrease GDP by $25 billion

(c)decrease GDP by $5 billion (d)increase GDP by $25 billion

I already know the answer. I just want to know the steps how to solve it to get the answer.

Answer 1