Question Details

To prevent this action from having any impact on GDP



Suppose that last year consumption was $570 billion, tax receipts were $240 billion, and income was $900 billion. The corresponding numbers for this year are $600 billion, $250 billion and $950 billion. 
1. The MPC (marginal propensity to consume out of disposable income) is 
a) 0.7 or less b) more than 0.7 but not more than 0.8 
c) more than 0.8 but not more than 0.9 d) more than 0.9 
2. The marginal tax rate is 
a) 20% or less b) more than 20% but not more than 23% 
c) more than 23% but not more than 26% d) more than 26% 
3. Suppose the government has decided to increase spending by $5 billion to buy some helicopters. To prevent this action from having any impact on GDP, taxes must be 
a) cut by $5 billion b) increased by $5 billion 
c) increased, but by less than $5 billion d) increased, but by more than $5 billion 
4. Which of the following policies would a Keynesian expect to produce the largest increase in income? 
a) a tax cut of 200 b) an increase in transfer payments of 200 
c) an increase in government spending of 200 
d) an increase in both taxes and government spending of 200



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