Consider a hypothetical economy. Households spend $0.90 of each additional dollar they earn and save the remaining $0.10. The multiplier for this economy is Suppose government purchases, G, in this economy decrease by $300 billion. The decrease in G will lead to a decrease in income, generating a decrease in consumption that decreases income yet again, and so on. Fill in the following table to show the impact of the change in G on the first two rounds of consumption spending and, eventually, on national income. Note: Use negative signs if numbers are negative. Change in G-$300 billion First Change in Consumption $ Second Change in Consumption $ - ● Total Change in Income = $ billion billion billion Now consider the impact of a similar change in taxes. The (absolute value) of the tax multiplier in this question will be change by -$300 billion, spending will change by $ billion. Based on your results, this Keynesian model predicts that a change in ; thus, if taxes will have the larger effect on income, given the

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Please answer everything in the photo. The bottom question is asking if it is taxes or government purchases.
Consider a hypothetical economy. Households spend $0.90 of each additional dollar they earn and save the remaining $0.10. The multiplier for this
economy is
Suppose government purchases, G, in this economy decrease by $300 billion. The decrease in G will lead to a decrease in income, generating a
decrease in consumption that decreases income yet again, and so on.
Fill in the following table to show the impact of the change in G on the first two rounds of consumption spending and, eventually, on national income.
Note: Use negative signs if numbers are negative.
Change in G
First Change in Consumption
Second Change in Consumption = $
-$300 billion
=
Total Change in Income = $
billion
billion
billion
Now consider the impact of a similar change in taxes. The (absolute value) of the tax multiplier in this question will be
change by -$300 billion, spending will change by $
billion.
Based on your results, this Keynesian model predicts that a change in
initial change in planned expenditures is of the same magnitude.
; thus, if taxes
will have the larger effect on income, given the
Transcribed Image Text:Consider a hypothetical economy. Households spend $0.90 of each additional dollar they earn and save the remaining $0.10. The multiplier for this economy is Suppose government purchases, G, in this economy decrease by $300 billion. The decrease in G will lead to a decrease in income, generating a decrease in consumption that decreases income yet again, and so on. Fill in the following table to show the impact of the change in G on the first two rounds of consumption spending and, eventually, on national income. Note: Use negative signs if numbers are negative. Change in G First Change in Consumption Second Change in Consumption = $ -$300 billion = Total Change in Income = $ billion billion billion Now consider the impact of a similar change in taxes. The (absolute value) of the tax multiplier in this question will be change by -$300 billion, spending will change by $ billion. Based on your results, this Keynesian model predicts that a change in initial change in planned expenditures is of the same magnitude. ; thus, if taxes will have the larger effect on income, given the
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