In Country X, the Government Simultaneously Increases Its Expenditures by $100

question 218

Multiple Choice

In Country X, the government simultaneously increases its expenditures by $100 billion and increases taxes by $100 billion. If the MPS is equal to 0.4, the government's action ________ real GDP by ________.

• A) increases; $250 billion
• B) decreases; $250 billion
• C) increases; $100 billion
• D) has no effect on; $0

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Definitions:

Buyer's Needs

The requirements or desires that consumers have when looking to purchase products or services.

Tying Agreements

Contractual agreements where the sale of one product is conditional on the purchase of another, often unrelated, product.

U.S. Justice Department

The federal executive department responsible for the enforcement of the law and administration of justice in the United States.

Free Market

An economic system based on supply and demand with little or no government control, where the prices of goods and services are determined freely by the open market.