Suppose That Congress Allocates $5 Billion to an "Energy-Efficient Appliance

question 54

Multiple Choice

Suppose that Congress allocates $5 billion to an "energy-efficient appliance rebate" program.It also raises taxes by $5 billion to keep the deficit from growing.If the marginal propensity to consume is 0.8,what is the effect on equilibrium GDP?

• A)GDP does not change.
• B)GDP increases by $25 billion.
• C)GDP increases by $4 billion.
• D)GDP increases by $5 billion.

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Definitions:

Accepted

Recognized as true or valid; in the context of contracts, to agree to the terms of an offer.

Perishable Goods

Items, especially foodstuffs, that are subject to spoilage and decay in a short period of time if not properly cared for.

Merchant

A person or company engaged in the trade of goods, specifically in the context of consumer protection laws, someone dealing in goods of the kind involved in the transaction.

Reasonable Effort

The degree of diligence and attention expected under certain circumstances, typically what a reasonable person would do.