Q. Two identical countries, Nation A and Nation B, can each be described by a Keynesian-cross model. MPC is .9 in each nation.
How much is government purchases multiplier for each nation?
How much is tax multiplier for each nation?
Nation A decides to increase spending by $2 billion, while Nation B decides to cut taxes by $2 billion. In which nation will new equilibrium level of income be greater? Please elucidate.