Suppose That Congress Allocates $5 Billion to an "Energy-Efficient Appliance

question 54

Multiple Choice

Suppose that Congress allocates $5 billion to an "energy-efficient appliance rebate" program.It also raises taxes by $5 billion to keep the deficit from growing.If the marginal propensity to consume is 0.8,what is the effect on equilibrium GDP?

• A)GDP does not change.
• B)GDP increases by $25 billion.
• C)GDP increases by $4 billion.
• D)GDP increases by $5 billion.

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Definitions:

Marginal Revenue

The additional income gained from selling one more unit of a product or service.

Output

The total amount of goods and services produced by an individual, firm, industry, or economy within a certain period.

Price

The amount of money exchanged for a unit of a good or service.

Short Run

This refers to a period in which at least one input or resource is fixed, while others can be varied to adjust output.