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January 3rd, 2018

Assume the economy is in short-run equilibrium and there is less than full-employment output. Also assume that the marginal propensity to consume (MPC) is equal to 0.8. a. What is the value of the government spending multiplier in this case? b. Given the size of the multiplier, what would be the implied change in income (gross domestic product) from the stimulus spending of $500 billion?

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