Suppose the MPC Is 0

question 55

Multiple Choice

Suppose the MPC is 0.60.Assume there are no crowding out or investment accelerator effects.If the government increases expenditures by $200 billion,then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion,then by how much does aggregate demand shift to the right?

• A)$300 billion and $180 billion
• B)$300 billion and $300 billion
• C)$500 billion and $300 billion
• D)$500 billion and $500 billion

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Definitions:

Allocative Efficiency

Achieved when resources are distributed in a way that maximizes the net benefit to society, ensuring that each good is produced up to the point where the last unit provides a marginal benefit equal to the marginal cost of producing it.

Regulation Dilemma

The challenge of finding the balance between necessary government intervention in markets to correct failures and excessive regulation that may stifle competition and innovation.

Economic Profits

The excess of total revenues over the total costs, including both explicit and implicit costs, indicating the profitability beyond the normal return of investments.

Natural Monopoly

A market condition where a single supplier can provide a product or service at a lower cost than any potential competitor, often due to economies of scale.