Unit 3.3, Chapter 12 Key Questions #2, 3

2.
Multiplier
= 1/ MPS
= 5
government spending = $5 billion

.8 x Tax Cut = 5 Billion
Tax Cut = 6.25 Billion

1.25 billion is saved, not spent.

3.
Increase taxes, decrease government spending, or both. Aggregate demand shifts in, therefore inflation goes down.

Someone that thinks the public sector is too large would favor less government spending, someone that wants to preserve the size would raise taxes