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Assume in an economy that the equilibrium level of GDP is $400 and the MPS is .25. Now suppose government collects taxes of $100 and
Assume in an economy that the equilibrium level of GDP is $400 and the MPS is .25. Now suppose government collects taxes of $100 and spends the entire amount of $100. As a result:
the equilibrium level of GDP will remain unchanged.
the equilibrium level of real GDP will rise to $800
the equilibrium level of GDP will fall to $300
the equilibrium level of GDP will rise to $500.
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