Assume the Marginal Propensity to Consume Is 0

question 82

Multiple Choice

Assume the marginal propensity to consume is 0.8 and potential output is $800 billion. If actual real GDP is $850 billion, which of the following policies would bring the economy to potential output?

• A)Increase taxes by $50 billion.
• B)Increase taxes by $10 billion.
• C)Increase taxes by $12.5 billion.
• D)Increase transfers by $12.5 billion.

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Definitions:

Cherokee

The Cherokee are a Native American people historically settled in the southeastern United States, now primarily in Oklahoma and North Carolina, known for their rich culture, language, and forced relocation events like the Trail of Tears.

Gold

A chemical element with the symbol Au, gold is a precious metal known for its use in jewelry, currency, and various industrial applications due to its conductivity and resistance to corrosion.

Worcester V. Georgia

A U.S. Supreme Court case in 1832 that held that Native American nations were distinct communities with the right to maintain lands independent of state laws.

Cherokee Nation

A large Native American tribe historically based in the southeastern United States, known for their adaptation to European American culture and the tragic Trail of Tears relocation.