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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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