Aggregate Response to Two Significant, but Temporary, Tax Adjustments Made

question 34

Multiple Choice

Aggregate response to two significant, but temporary, tax adjustments made in the United States during the late 1960s and early 1970s suggests a marginal propensity to consume for temporary changes in income

• A) larger than the "Keynesian" long-run estimate of 0.94.
• B) so far below the "Keynesian" long-run estimate of 0.94 that the forward- looking theoretical prediction of 0.05 to 0.1 is validated.
• C) below the "Keynesian" estimate of 0.94 but above the theoretical predictions of 0.05 to 0.1.
• D) that validates the applicability of the "Keynesian" long-run estimate of 0.94 for analyses of short-run phenomena.
• E) identical to the forward-looking theoretical prediction of 0.16.

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Negative Externalities

Negative externalities are detrimental effects suffered by a third party due to an economic activity, where the cost of these effects is not reflected in the market price.

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The increase in total cost that arises from an increase in the level of output by one unit; also known as marginal cost.