If Policy Makers Want to Increase Real GDP by $100

question 259

True/False

If policy makers want to increase real GDP by $100 billion and the marginal propensity to consume is 0.75, they should increase government purchases of goods and services by $75 billion.

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Definitions:

Spillover Costs

Costs of production that affect people who have no control over or involvement in the production process, also known as externalities.

Excise Taxes

A tax levied on specific goods or commodities produced or sold within a country, such as alcohol, cigarettes, and gasoline.

Government Intervention

Actions taken by a government to influence or regulate various activities within its economy, such as imposing taxes, subsidies, and regulations.

External Costs

Costs incurred by society as a whole due to economic activities but not reflected in the market price or borne by the producer or consumer involved.