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Suppose a country decreases income taxes by $100 billion, and this leads to an increase in consumption spending of $90 billion. Suppose the multiplier is
Suppose a country decreases income taxes by $100 billion, and this leads to an increase in consumption spending of $90 billion. Suppose the multiplier is 1.5 and the economy's real GDP is $5,000 billion. a. In which direction will the aggregate demand curve shift and by how much? b. Explain using a graph why the change in real GDP is likely to be smaller than the shift in the aggregate demand curve.
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