Suppose That the Government Allocates $2 Billion for New Roads

question 14

Multiple Choice

Suppose that the government allocates $2 billion for new roads. It also raises taxes by $2 billion to keep the deficit from growing. If the marginal propensity to consume = 0.8, what is the effect on equilibrium GDP?

• A)GDP does not change
• B)GDP increases by $5 billion
• C)GDP increases by $800 million
• D)GDP increases by $2 billion

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Definitions:

Cognitive Development

The study of how thinking, problem solving, and intelligence evolve as people grow from infancy through adulthood.

Schaie's Model

A theory of cognitive development that outlines how thinking and problem solving abilities change over the course of a person’s life.

Postconventional Morality

The highest stage in Kohlberg's model of moral development, in which individuals make ethical decisions based on universal principles of justice and rights.

Kohlberg

Refers to Lawrence Kohlberg, a psychologist known for his theory of moral development.