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With MPC of 0.8, a Rs 100 increase in government spending (taxes fixed) raises output by
ARs 125
BRs 80
CRs 500
DRs 400
Answer & Solution
Correct answer: C. Rs 500
The multiplier is 1 divided by 1 minus 0.8, which is 5, so Rs 100 of spending raises output by Rs 500.
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