Suppose the government increases taxes by $11110 billion and the marginal propensity to consume is 0.990. By how will equilibrium GDP change?

- $1,099,890 billion.

Explanation:

Marginal propensity to consume (MPC) = 0.990

Tax multiplier = - MPC : (1 - MPC)

= - 0.990 : (1 - 0.990)

= - 9 9

change in GDP = Change in taxes * Tax multiplier

= $11110 * (-99)

= - $1,099,890

the minus sign shows a decrease

Hence, the change in equilibrium GDP is - $1,099,890 billion.