Suppose a closed economy with no government spending which in equilibrium is producing an output and income of 1200. Suppose also that the marginal propensity to consume is 0.75, and that, if at full employment, the economy would produce an output and income of 3750 By how much would the government need to cut taxes (T) to bring the economy to full employment

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In a closed economy with no government spending the equilibrium level of income Y is determined by t... View the full answer