1) Assume that the marginal propensity to consume is 2/3 (0.667) in a Keynesian model. If government spending increases by $120 billion, the increase in GDP is:

a) 360 billion

b) 240 billion

c) 180 billion

d) 160 billion

2) A cut in taxes of $120 billion under the conditions of question 1 will increase GDP by:

a) 200 billion

b) 240 billion

c) 280 billion

d) 320 billion

e) 360 billion