Assume That the MPC Is 0

question 319

Multiple Choice

Assume that the MPC is 0.8. If government spending increases by $200, equilibrium output ________; and if taxes increase by $200, equilibrium output ________.

• A) increases by $1,000; decreases by $800
• B) increases by $800; decreases by $600
• C) increases by $1,000; decreases by $1,000
• D) increases by $1,600; decreases by $1,200

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Definitions:

Demand Curve

A graphical representation showing the relationship between the price of a good and the quantity of that good that consumers are willing and able to purchase at various prices.

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity that suppliers are willing to offer for sale at that price.

Willingness To Pay

The maximum price at which a consumer is prepared to buy a good or service, reflecting the value they place on it.

Full Cost

The total expense associated with producing a good or service, including both fixed and variable costs.