Assume That Taxes Depend on Income

question 333

Multiple Choice

Assume that taxes depend on income. The MPC is 0.5 and t is 0.5. The government spending multiplier is

• A) 1.33.
• B) 2.
• C) 2.5.
• D) 4.

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Definitions:

Tax Cuts

Reductions in the tax rates or the amount of taxes owed, usually enacted to stimulate economic growth or to redistribute income more favorably.

Government Expenditures

The total amount of money spent by the government on various types of goods and services, including infrastructure, education, and defense.

Keynesian Analysis

An economic theory proposing that government intervention can help stabilize the economy through spending and tax policies.

Aggregate Demand

The total demand for all goods and services in an economy at different price levels, within a given time period.