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Suppose P is fixed, t=0 and the MPC equals .90. Policy option A is to raise G by 500; policy option B is to raise
Suppose P is fixed, t=0 and the MPC equals .90. Policy option A is to raise G by 500; policy option B is to raise G by 250 and to cut fixed Taxes by 250. Both of these options will increase the budget deficit by 500. Which policy option will have a greater impact on AD? Explain.
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