If Short-Run Equilibrium Output Equals 10,000, the Income-Expenditure Multiplier Equals

question 17

Multiple Choice

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then taxes must be ________ by approximately ________ to eliminate any output gap.

• A)decreased; 250
• B)decreased; 200
• C)increased; 250
• D)increased; 200

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Definitions:

Industry Firms

Companies or businesses that operate within a specific sector of the economy, producing goods or services related to that sector.

Ceiling Price

A maximum legal price set by the government on certain goods or services to prevent prices from rising above a certain level.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a specific price.

Black Market

An illegal trade of goods or services conducted outside the authorization of the official regulatory framework, often to avoid taxes or due to the illicit nature of the goods.