Assume the Marginal Propensity to Consume (MPC) Is 0

question 85

Multiple Choice

Assume the marginal propensity to consume (MPC) is 0.8 and the government cuts taxes by $250 billion. The aggregate demand curve will shift to the:

• A) right by $1000 billion.
• B) right by $750 billion.
• C) left by $1000 billion.
• D) left by $750 billion.

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Definitions:

Strike Price

The set price at which an option contract can be bought or sold when it is exercised.

Pre-Tax Net Profit

The amount of profit earned by a company before taxes are deducted.

Time Value

Refers to the concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity.

Option

A financial derivative that gives the buyer the right, but not the obligation, to buy or sell an asset at a specified price within a certain period.