Assume That the MPC Is 0

question 43

Multiple Choice

Assume that the MPC is 0.85 and investment spending rises by $100 million.How much consumption spending will this generate in the second round of spending?

• A)$15 million
• B)$85 million
• C)$100 million
• D)$118 million
• E)$185 million

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Definitions:

Corrective Taxes

Taxes designed to internalize externalities, typically by charging for negative externalities to correct market outcomes.

Internalize

The process of incorporating the cost of externalities into the decision-making processes of relevant parties, often through regulation or market-based incentives.

Corrective Taxes

Taxes designed to correct the market outcomes that are not efficient by themselves, usually by discouraging negative externalities.

Market-Based Solution

Strategies or policies that use market forces and principles to address and solve economic and social issues.