Assume in a Private Economy That the Equilibrium Level of Income

question 195

Multiple Choice

Assume in a private economy that the equilibrium level of income is $380 and the MPS is 0.25.Now suppose government collects taxes of $50 and spends the entire amount.As a result:

• A)the equilibrium level of real income and the price level will both remain unchanged.
• B)nominal wage rates will fall.
• C)the equilibrium level of income will rise to $420.
• D)the equilibrium level of income will rise to $430.

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Definitions:

Beta

A measure of a stock's volatility in relation to the overall market. A beta greater than 1 indicates a stock is more volatile than the market, while a beta less than 1 suggests it is less volatile.

Risk-Free Rate

The anticipated financial gain from an investment devoid of any risk, frequently indicated by the yields of government bonds.

After-Tax Cost of Debt

The net cost of debt after accounting for the tax deductions available on interest payments.

Coupon

The interest rate on a bond that the issuer promises to pay to the holder until maturity, usually expressed as an annual percentage.