Assume the government increases its purchases of goods and

Question

Assume the government increases its purchases of goods and services by $50 million, with a marginal propensity to consume of 0.90. The country has a preogressive income tax system and imports goods and services. Therefore, which of the following would most likely be correct?

1. GDP increases by $50 million

2. GDP increases by less than $50 million

3. GDP increases by $500 million

4. GDP decreases by $500 million

5. GDP increases by less than $500 million