In an Economy, the Government Wants to Decrease Aggregate Demand

question 220

Multiple Choice

In an economy, the government wants to decrease aggregate demand by $24 billion at each price level to decrease real GDP and control demand-pull inflation.If the MPC is .75, then it could increase taxes by:

• A)$6 billion.
• B)$8 billion.
• C)$10 billion.
• D)$12 billion.

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Definitions:

High-low Method

A technique in cost accounting used to estimate fixed and variable costs given the highest and lowest levels of activity.

Variable Cost Per Unit

The cost that varies with each unit of product produced, directly tied to the production volume, such as materials and labor.

Fixed Costs

Expenses that remain constant regardless of the level of production or sales, including items like rent, salaries, and insurance.

Contribution Margin Ratio

The percentage of sales revenue that exceeds variable costs, indicating how much sales contribute to fixed costs and profit.