In Country Z, the Government Simultaneously Decreases Its Expenditures by $20

question 69

Multiple Choice

In Country Z, the government simultaneously decreases its expenditures by $20 billion and decreases taxes by $20 billion. If the MPS is equal to 0.2, the government's action ________ real GDP by ________.

• A)decreases; $100 billion
• B)decreases; $20 billion
• C)decreases; $80 billion
• D)has no effect on; $0

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Definitions:

Common Stock

A type of security that represents ownership in a corporation, giving holders voting rights and a share in the company's profits via dividends.

Cash Purchase

A transaction method in which goods or services are paid for in full with cash at the time of purchase.

Incremental Value

Incremental value refers to the additional or extra value generated by undertaking a specific action or investment compared to not doing so.

Merger Premium

The merger premium is the additional cost above the market price that a company pays to acquire another company, often reflecting the perceived future value of the target company.