Assume a Two-Country World (Countries I and II) Where Taxes

question 2

Multiple Choice

Assume a two-country world (countries I and II) where taxes do not depend on income And where MPS_I = 0.2, MPM_I = 0.2, MPS_II = 0.1, and MPM_II = 0.3. In this situation, What is the numerical value of the autonomous spending multiplier that applies to a Change in autonomous investment in country I on country I's income, taking account of Foreign repercussions?

• A) 1.0
• B) 2.5
• C) 4.0
• D) 5.0

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Definitions:

Parent-subsidiary Corporations

A relationship between two companies where one (the parent) controls the other (the subsidiary).

Consolidated Tax Return

A tax return filed by a corporate group that combines its tax liability into one return, simplifying the tax filing process.

Intercompany Sales

Transactions of goods or services between divisions or subsidiaries within the same parent company.

Common Parent Corporation

The umbrella corporation in a conglomerate or group of companies that controls subsidiary companies.