Assume the government cuts its purchases by $120 billion. As a result, the budget deficit is reduced by $40 billion, private domestic saving decreases by $10 billion, disposable personal income decreases by $80 billion and the trade deficit is reduced by $15 billion. By how much has national income (Y) changed?
Suppose that the economy starts at equilibrium and the mpc = 0.8. What would be the effect of a $300 increase in taxes once all the rounds of the multiplier process are complete?
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