If Government Decreases Its Purchases by $20 Billion and the MPC

question 151

True/False

If government decreases its purchases by $20 billion and the MPC is 0.8, equilibrium GDP will decrease by $100 billion.

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Definitions:

Average Tax Rate

The ratio of the total amount of taxes paid to the total tax base (taxable income or spending), representing the average taxation faced by an individual or firm.

Taxable Income

The amount of income that is subject to income tax after deductions and exemptions.

Average Tax Rate

A metric that reflects the ratio of total taxes paid to total income, showing the proportion of income that goes towards tax payments.

Tax Liability

The total amount of tax owed to a taxing authority by an individual, organization, or other entity.