Assuming no change in government spending, an decrease in taxes of $100 billion with an MPC of 0.90 will add a total of $ billion to the economy after the multiplier effect. A. 800 B. 400 C. 500 D. 900

Assuming no change in government spending, an decrease in taxes of $100 billion with an MPC of 0.90 will add a total of $ billion to the economy after the multiplier effect. A. 800
B. 400
C. 500
D. 900

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  1. Earn positive economic profit in the long run if it can maintain barriers to entry, assuming no changes in costs or market demand

  2. D. 900

    Explanation:

    MPC = 0.90

    The multiplier = MPC \ {1 - MPC} = 0.90 / (1-0.90) = 0.90 / 0.10 = 9

    The Effect = Decrease in taxes * Spending multiplier

    The Effect = $100 * 9

    The Effect = $900

    So, an decrease in taxes of $100 billion with an MPC of 0.90 will add a total of $900 billion to the economy after the multiplier effect.

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