Consider an economy in which the marginal propensity to consume is 0.75, prices are constant; G is initially 1,000, taxes are autonomous (not related to income) and are initially 1,400, transfer payments are initially 400, and GDP is initially 7,000. If the government wishes to increase GDP to 7,400, and it is considering changing government purchases, or taxes, or transfer payments. In each case, what would the new government surplus or deficit be?

Group of answer choices

government purchases result in $100 surplus, taxes cuts result in $100 surplus, transfer payments result in $100 surplus.

government purchases result in $100 deficit, taxes cuts result in $133.33 deficit, transfer payments result in $133.33 deficit.

government purchases result in $100 deficit, taxes cuts result in $100 deficit, transfer payments result in $100 deficit.

government purchases result in $100 surplus, taxes cuts result in $133.33 surplus, transfer payments result in $133.33 surplus.

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The detailed answer for the above question is provided below The correct answer is b government purchases result in 100 deficit taxes cuts result in 1... View the full answer