The income elasticity of demand is largest for

If MPC = 0.8, a $200 billion increase in government purchases would have what size effect on the "first round" of induced added consumption, and what total effect on AD?

a. increase "first round" consumption by $80 billion; increase AD by $400 billion b. increase "first round" consumption by $160 billion; increase AD by $1 trillion c. increase "first round" consumption by $200 billion; increase AD by $1 trillion d. increase "first round" consumption by $800 billion; increase AD by $4 trillion

An decrease in taxes combined with a decrease in government purchases would: a. increase AD

b. decrease AD. c. leave AD unchanged. d. have an indeterminate effect on AD.