the change in equilibrium output
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Suppose the economy starts at equilibrium and the mpc=.8. What would be the effect of a $500 increase in taxes (once all the rounds of the multiplier process are complete) in relation to equilibrium output?
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This solution helps explore the change in equilibrium output within the context of microeconomics.
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The MPC is given to be 0.8, and therefore using the relation MPC + MPS = 1, we can find MPS to be 0.2. Also, the multiplier is given to be 1/MPS, and hence in this ...
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