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What would happen if taxes and spending were increased by the same amount? (Hint: it is not a wash.) What would be the effect of

  1. What would happen if taxes and spending were increased by the same amount? (Hint: it is not a wash.)
  2. What would be the effect of a cut in taxes of $200 billion if the marginal propensity to consume were .9? Why would this policy be different from simply having the government initiate a $200 billion spending program (assuming the income multiplier is 10)? Support your answer with hypothetical calculations.

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