Assume That Taxes Depend on Income and the MPC Is

question 265

Multiple Choice

Assume that taxes depend on income and the MPC is 0.8 and t is 0.4. An increase in taxes of $10 billion will decrease equilibrium income by

• A) $15.4 billion.
• B) $19.2 billion.
• C) $25 billion.
• D) $27 billion.

---

Definitions:

Future Value

The estimated amount of money an investment is expected to be worth at the end of a specified period, accounting for interest or capital gains.

Compounded Semiannually

A method of calculating interest where the interest is added to the principal amount twice a year, leading to compound growth.

Total Amount

The complete sum or quantity, including all parts, elements, or aspects of something.

Compound Interest

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.