If Lump-Sum Taxes Are Decreased by $10 Billion and the Equilibrium

question 152

Multiple Choice

If lump-sum taxes are decreased by $10 billion and the equilibrium GDP increases by $40 billion as a result, we can conclude that:

• A)the expenditures multiplier is 4.
• B)the MPC for this economy is .8.
• C)the MPC for this economy is .6.
• D)the expenditures multiplier is 3.

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Definitions:

Budget Line

A graphical representation of all possible combinations of two goods that can be purchased with a given income and prices.

Expected Return

The average of all possible returns for an investment, weighted by the likelihood of each outcome.

Risky Asset

Asset that provides an uncertain flow of money or services to its owner.

Risk-free Asset

A financial instrument that is considered to have minimal risk of financial loss, such as government bonds.