According to the Keynesian cross model, if the marginal propensity to consume is 2/3, a cut in taxes of $120 billion increases equilibrium income by a. $160 billion. b. $180 billion. c. $240 billion. d. $360 billion.

Step 1 of 2 The marginal propensity to consume (MP6) is the fraction of each additional dollar of income that is consumed rather than saved. In this case, the MP0 is % Explanation: It means that for ever).r additional dollar of income, people will consume $32 and save %. Step 2 of 2 Atax cut is an increase in disposable income, which will lead to an increase in consumption. Explanation: The multiplier effect states that the increase in consumption will be greater than the initial tax cut. 1 lMPC ' The multiplier is equal to so in this case, the multiplier is 3. Therefore. a tax cut of $120 billion will increase equilibrium income by $120 billion X 3 = $360 billion