Suppose the President Is Successful in Passing a $10 Billion

question 178

Multiple Choice

Suppose the president is successful in passing a $10 billion tax increase.Assume that taxes are fixed,the economy is closed,and the marginal propensity to consume is 0.8.What happens to equilibrium GDP?

• A)There is a $50 billion increase in equilibrium GDP.
• B)There is a $50 billion decrease in equilibrium GDP.
• C)There is a $40 billion increase in equilibrium GDP.
• D)There is a $40 billion decrease in equilibrium GDP.

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Definitions:

Budget Constraint

The limitation on the consumption bundles that a consumer can afford based on their income and prices of goods.

Good X

A placeholder term used to denote a specific product or commodity in economic models and discussions.

Good Y

A term used in economics to represent a generic second good, often used in theoretical models comparing two different goods.

Budget Constraint

The restrictions on the sets of goods and services a consumer can purchase, determined by their income and the cost of these items.