Suppose the President Is Successful in Passing a $10 Billion

question 178

Multiple Choice

Suppose the president is successful in passing a $10 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.8.What happens to equilibrium GDP?

• A)There is a $50 billion increase in equilibrium GDP.
• B)There is a $50 billion decrease in equilibrium GDP.
• C)There is a $40 billion increase in equilibrium GDP.
• D)There is a $40 billion decrease in equilibrium GDP.

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Definitions:

Product Costs

The costs directly associated with the creation of a product, encompassing direct materials, direct labor, and manufacturing overhead.

Variable Manufacturing Costs

Costs that vary directly with the volume of production, such as raw materials and direct labor.

Manufacturing Overhead

The collective costs associated with the production process that cannot be directly traced to specific units produced, including indirect materials, labor, and other overhead expenses.

Absorption Costing

A costing method that includes all manufacturing costs, direct materials, direct labor, and both variable and fixed manufacturing overhead, in the cost of a product.