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Thankssssssssssss Suppose the government reduces taxes by $40 million, and that there is no crowding-out effect, and that the marginal propensity to consume is 0.9.

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Thankssssssssssss

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Suppose the government reduces taxes by $40 million, and that there is no crowding-out effect, and that the marginal propensity to consume is 0.9. What is the total effect on aggregate demand? What would be the total effect on aggregate demand if instead the government increased purchases by $40 million? [5 marks]

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