If the MPC Equals 0

question 65

Multiple Choice

If the MPC equals 0.80,a $200 billion tax decrease will increase consumption in the first round by

• A)$40 billion.
• B)$160 billion.
• C)$200 billion.
• D)$100 billion.

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Definitions:

Irrational

Behavior or thoughts not based on logical reasoning, clear thinking, or aligned with factual evidence.

Economic Models

Simplified frameworks used to illustrate economic processes or theories through mathematical equations or diagrams.

Rationally

Acting based on reason or logic, typically in a way that maximizes self-interest or advantage within certain constraints or information.

Mental Accounting

The cognitive process individuals use to organize, evaluate, and keep track of their financial activities and decisions.