Assume in a private closed economy that the equilibrium level of income is $380 and the MPS is 0.25. Now suppose government collects taxes of $50 and spends the entire amount. As a result:
the equilibrium level of real income and the price level will both remain unchanged.
nominal wage rates will fall.
the equilibrium level of income will rise to $420.
the equilibrium level of income will rise to $430.
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