How do I solve this question based on the Keynesian Cross Model?

Question

In the Keynesian-cross model, if the MPC equals 0.75, then a $3 billion decrease in taxes increases planned expenditures by ______ and increases the equilibrium level of income by _____

it would be very helpful to show me how this is solved.

Answer 1

With only lump sum taxe the multiplier - MULT= 1/(1-MPC) = 4.

with a 3billion lump sum Tax Cut. 3/4 will be spent and 1/4 will be saved. The 3/4ths that is spent will go through the multipier process. Change in Y = MPC*multiplier Time cut in taxes = (3/4)*(4) * 3Billion = 3* 3b = 9 billion dollars