The Introduction of a $100 Autonomous Net Tax in an Economy

question 2

Multiple Choice

The introduction of a $100 autonomous net tax in an economy with an MPC equal to 0.7 will,at each level of real GDP,

• A)increase consumption by $100
• B)decrease consumption by $100
• C)increase consumption by $70
• D)decrease consumption by $70
• E)decrease consumption by $30

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Definitions:

Surrounding Maturity

This term appears to be less commonly used or specific; however, in context, it could refer to factors or conditions existing or occurring around the time a financial instrument reaches its maturity.

Convexity

An indicator of how the bond price's sensitivity to interest rate changes varies with the bond's yield, reflecting adjustments in the bond's duration.

Basis Points

A unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument.

Duration Mismatch

The disparity between the sensitivity of asset prices and liability values to changes in interest rates, affecting firms and financial institutions' balance sheets.