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:

Functions

Mathematical relations that uniquely associate elements of one set with elements of another set, often used to model relationships in science and economics.

Intrinsic Value

The inherent worth of an asset, independent of its market price, determined by its fundamental characteristics and earning potential.

Prisoners

Individuals who are held in confinement as a punishment for crimes or while awaiting trial.

Cash

Money in the form of currency notes and coins that is used for transactions or held as part of financial assets.