The Government Increases Both Its Expenditures and Taxes by $400

question 76

Multiple Choice

The government increases both its expenditures and taxes by $400 billion.There is no crowding out and no accelerator effect.Aggregate demand shifts by $400 billion.Which of the following is consistent with how far aggregate demand shifts?

• A)MPC = 1/2,and the effects of the increase in taxes is 1/2 as strong as the change in government expenditures.
• B)MPC = 2/3,and the effects of the increase in taxes is 2/3 as strong as the change in government expenditures
• C)MPC = 3/4,and the effects of the increase in taxes is 3/4 as strong as the change in government expenditures
• D)All of the above are correct.

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Definitions:

Raw Materials Used

The basic substances in their natural, modified, or semi-processed state used as inputs for production.

Average Inventory

The mean value of inventory within a certain period, calculated by adding the beginning inventory and ending inventory and dividing by two.

Direct Labor

The labor cost directly associated with the production of goods, including wages for workers who physically convert materials into the finished product.

Raw Materials

The basic materials from which products are made, typically not yet processed or used in manufacturing.