question archive Suppose that the government allocates $1 billion for new roads
Suppose that the government allocates $1 billion for new roads
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Suppose that the government allocates $1 billion for new roads. It also raises taxes by $1 billion to keep the deficit from growing. The absolute value of the government purchase multiplier is 10 and that of the tax multiplier is 9. What is the effect on equilibrium GDP?
GDP does not change.
GDP increases by $10 billion.
GDP increases by $900,000.
GDP increases by $1 billion.
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