The MPC in Montavada Is .75

question 4

Essay

The MPC in Montavada is .75.
(a) If taxes were reduced by $1,000 in Montavada, by how much would equilibrium output change?
(b) If government spending were increased by $1,000 in Montavada, by how much would equilibrium output change?
(c) Explain why a tax cut of $1,000 would have less effect on the economy of Montavada than an increase in government spending of $1,000.

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Definitions:

Book Value

The company's assets' total worth after subtracting its debts, frequently utilized to determine whether a stock is priced too low or too high.

Fair Value

The financial receipts from a sale of an asset or the liabilities' transfer expense in a transaction that is orderly and involves market participants at the time allocated for measurement.

Equity Method

An accounting procedure used for recording investments in associated companies where the investor has significant influence but not control.

Significant Influence

The capability to engage in the decision-making processes regarding the financial and operational policies of an investee, but without exercising control or shared control over such policies.