Answer:
Increasing government spending by $60 billion while raising taxes $60 billion
Explanation:
If we do the multiplicator of Government spending which is equal to = 1/MPS
And MPS (marginal propensity to save) = 1 - MPC (marginal propensity to consume)
But MPC = 0.75
Hence multiplicator of Government spending = 1/(1-0.75) = 4
If we look for the multiplicator of taxes = -MPC/MPS
But MPS = 1 - MPC
= -MPC/(1-MPC)
= -0.75/0.25 = -3
Hence if government spending is increased by $60 billion, GDP will be increased by 60 x 4 = $240 billion
Also if taxes are increased by the same amount, GDP will decrease by 60x3 = $180 billion
Hence this means that GDP will increase by 60 billion dollars, as the difference between the both is 240 - 180 = 60 billion dollars
