Assume the Marginal Propensity to Consume Is 0

question 282

Multiple Choice

Assume the marginal propensity to consume is 0.8 and potential output is $800 billion. If actual real GDP is $700 billion, which of the following policies would bring the economy to potential output?

• A)Decrease taxes by $100 billion.
• B)Increase taxes by $100 billion.
• C)Decrease taxes by $25 billion.
• D)Decrease government transfers by $25 billion.

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