Suppose the GDP Is in Equilibrium at Full Employment and the MPC

question 77

Multiple Choice

Suppose the GDP is in equilibrium at full employment and the MPC is .80. If government wants to increase its purchase of goods and services by $16 billion without changing equilibrium GDP, taxes should be:

• A) Increased by $20 billion
• B) Reduced by $16 billion
• C) Increased by $16 billion
• D) Reduced by $20 billion

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Definitions:

Fiscal Year

A one-year period used for financial reporting and budgeting that may not align with the calendar year.

Internal Rates Of Return

The financial rate that ensures a project's cash flows have a net present value of exactly zero.

Maximum Discount Rate

The highest interest rate set by a central bank to lend money to financial institutions.