If the MPC Is 0

question 55

Multiple Choice

If the MPC is 0.75,a decrease in net taxes of $100 billion will increase the equilibrium level of real GDP by

• A)$75 billion
• B)$100 billion
• C)$300 billion
• D)$400 billion
• E)$500 billion

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Definitions:

Dynamic Hedging

A strategy of managing risk that involves adjusting the number of derivatives used as financial instruments in proportion to the changing value of the underlying asset.

Volatile Markets

Financial markets that are characterized by rapid and significant changes in prices.

Rebalancing

Realigning the proportions of assets in a portfolio as needed.

In-the-money

A term used in options trading to indicate that an option has intrinsic value, meaning it is profitable to exercise.