Assuming no change in government spending, an increase in taxes of $80 billion with an mpc of 0.50 will subtract a total of $ billion from the economy after the multiplier effect. a) 80
b) 400
c) 200
d) 500

A total of $50 billion will be subtracted from the economy after the multiplier effect

Explanation:

Given:

MPC = 0.5

Taxes = $80 billion

First, we calculate the Multiplier

Multiplier = 1 ÷ (1 - MPC)

Multiplier = 1 ÷ (1 - 0.5)

Multiplier = 1 ÷ 0.5

Multiplier = 2

Since the initial tax is $80 billion and the multiplier is 2; this implies that

2 * $80billion

= $160 billion

Multiplier Effect = $160 billion - $80 billion

Multiplier Effect = $80 billion

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