Suppose the President Is Successful in Passing a $5 Billion

question 57

Multiple Choice

Suppose the president is successful in passing a $5 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.75.What happens to equilibrium GDP?

• A)There is a $20 billion increase in equilibrium GDP.
• B)There is a $20 billion decrease in equilibrium GDP.
• C)There is a $15 billion increase in equilibrium GDP.
• D)There is a $15 billion decrease in equilibrium GDP.

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Definitions:

Overhead Rate

The ratio used to allocate indirect costs to products or services, based on a specific measure such as labor hours or machine hours.

Direct Hours

Hours worked directly on a specific task or product, often used in calculating labor costs in manufacturing.

Direct Materials

Raw materials that can be directly attributed to the production of a specific product or service.

Selling Price

The amount of money a customer pays to purchase a product or service.