Assume an open, mixed economy. That is, foreign trade is part of the economy, and the economy includes both a public (government) and a private (consumers and businesses) sector.

Given this, aggregate demand is expressed as (C + I + G + X). Assume the MPC is .7.

Assume a stimulus package of $100 billion has been approved by Congress and the money has been spent. In order to pay for those expenditures, Congress also approved a $100 billion increase in individual income taxes. Will these actions by Congress expand or contract the economy or are they just useless actions?

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