An economy has a marginal propensity to consume of 0.90. The tax rate is 0.10.
a. What is the value of the multiplier?
b. What would the value of the multiplier be if the tax rate increased to 0.15?
c. Suppose that the government increases purchases by $2 billion in (a) and (b).What is the change in real GDP in each case?
d. How do changes in the tax rate affect the amount by which equilibrium real GDP changes as government purchases change?