Assume in a private economy that the equilibrium level of income is $380 and the MPS is 0.25. Now suppose government collects taxes of $50 and spends the entire amount. As a result: the equilibrium level of real income and the price level will both remain unchanged. nominal wage rates will fall. the equilibrium level of income will rise to $420. the equilibrium level of income will rise to $430.
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The initial equilibrium level of income is $380, and the MPS is 0.25. Show more…
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