Consider a Consumption Function in a Simple Macro Model with Government

question 23

Multiple Choice

Consider a consumption function in a simple macro model with government and taxes.Given a marginal propensity to consume out of disposable income of 0.8 and a net tax rate of 20% of national income,the marginal propensity to consume out of national income is

• A)0.36.
• B)0.64.
• C)0.80.
• D)0.90.
• E)1.00.

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Definitions:

Reasonable Reliance

A principle where a party acts based on the representation or promise of another, believing it to be true.

Bilateral Contract

An agreement involving two parties where each promises to perform an act in exchange for the other's act.

Unilateral Contract

A contract where one party makes a promise in exchange for an act by another party, which upon performance, binds the first party to its promise.

Promissory Estoppel

A law that stops someone from going back on a commitment they've made to another if the second party has trusted this promise to their own disadvantage.