Suppose a country's MPC is 0.8, and in this country, government seeks to boost real GDP by either increasing government purchases by $90 billion or by reducing taxes by the same amount. Instructions: For changes in real GDP enter your answer as a whole number. Round your answer 2 decimal places for multipliers. If you are entering a negative number include a minus sign. a. If it increases government purchases, real GDP will increase by $ billion, suggesting an expenditures multiplier of . If the government instead lowers taxes, real GDP will increase by $ billion, suggesting a tax multiplier of .
b. Now suppose another country's MPC is 0.75, and in this country, government seeks to reduce real GDP by either decreasing government purchases by $90 billion or by raising taxes by the same amount. If it decreases government purchases, real GDP will decrease by $ billion, suggesting an expenditures multiplier of . If the government instead raises taxes, real GDP will decrease by $ billion, suggesting a tax multiplier of .
c. Which of the following statements best explains the difference in magnitude of the multiplier effects between the expenditures multiplier and the tax multiplier