During a Recession, Analysts at the CBO Project That the Economy

question 87

Multiple Choice

During a recession, analysts at the CBO project that the economy is operating $1.5 trillion below potential output. Assuming the MPC is 0.8, by how much would the government have to cut taxes to restore potential output?

• A) $375 billion
• B) $300 billion
• C) $1.2 trillion
• D) $800 billion

---

Definitions:

Inventory

Items, such as raw materials, work-in-progress, and finished goods, that a company holds with the intention of selling them.

Operating Activities

Day-to-day business functions and transactions that affect a company's net income, primarily revenue and expense activities.

Net Income

The amount of money that remains after subtracting all expenses, taxes, and costs from total revenue.

Cash Dividends

Payments made by a corporation to its shareholder members. It is the share of profits distributed.