Assume the Marginal Propensity to Consume (MPC) Is 0

question 136

Multiple Choice

Assume the marginal propensity to consume (MPC) is 0.75 and the government cuts taxes by $250 billion. The aggregate demand curve will shift to the:

• A) right by $1,000 billion.
• B) right by $750 billion.
• C) left by $1,000 billion.
• D) left by $750 billion.

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Definitions:

Moral Hazard

A situation where one party engages in risky behavior knowing that it is protected against the consequences, often due to an asymmetry of information or a misalignment of incentives.

Imperfectly Monitored

A situation where there is insufficient oversight or observation, often leading to non-compliance or deviation from expected standards.

Tenure

The status of having a permanent position or employment, often used in the context of academic positions.

Moral Hazard Problem

A situation where one party is more likely to take risks because another party bears the consequences of those risks.