Actual output is $2,000, potential output is $2,500, and the marginal propensity to consume (MPC) is 0.8. Which action will return the economy to potential output?

A. Increase government spending by $125.
B. Increase government spending by $500.
C. Decrease taxes by $125.
D. Increase taxes by $125.

Question

02-12-2024
Business

High School

Thank you for visiting Actual output is 2 000 potential output is 2 500 and the marginal propensity to consume MPC is 0 8 Which action will return the. This page is designed to guide you through key points and clear explanations related to the topic at hand. We aim to make your learning experience smooth, insightful, and informative. Dive in and discover the answers you're looking for!

Actual output is $2,000, potential output is $2,500, and the marginal propensity to consume (MPC) is 0.8. Which action will return the economy to potential output?

A. Increase government spending by $125.
B. Increase government spending by $500.
C. Decrease taxes by $125.
D. Increase taxes by $125.

Answer :

Other Questions

Acknowledge the following book correctly in your research presentation: "Communication Skills, "

A stack of 600 workbooks is 84 inches tall. Mai guesses that

A climograph showing changing temperatures with four seasons likely indicates that the

A hunter is 3 m above the ground in a nest. For

Evaluate the expression: \[ 625 \cdot \sec^2\left(\tan^{-1}\left(\frac{13}{25}\right)\right) \]

What should food handlers do to prevent food allergens from being transferred

Calculate the sample standard deviation for the following data set. If necessary,

2.0 ml of 3.8 Molar Rubidium Carbonate is mixed with 38.2 ml

Listed below are body temperatures from five different subjects measured at 8

During the combustion of a peanut that weighed 0.341 g, the temperature

Somewhat experienced consumers with some knowledge of the product or service they

As a recreational boat operator, what actions must you take when in

Use the thermodynamic data provided in Appendix G to calculate the equilibrium

The angle of rotation is often measured in revolutions. Determine how many

Which practice could cause cross-contact with one of the eight major food

AshishSV AshishSV · Answer 1 · 2023-10-10T19:58:25-04:00

(Option c). The economy can be returned to potential output by decrease taxes by $125.

To determine the appropriate change to return the economy to potential output, we need to use the multiplier effect. The multiplier (k) can be calculated as follows:

Multiplier (k) = 1 / (1 - MPC)

= 1 / (1 - 0.8)

= 1 / 0.2

= 5

The output gap is $2,500 (potential output) - $2,000 (actual output) = $500. To find the necessary increase in government spending, we divide the output gap by the multiplier:

$500 ÷ 5 = $100

Decrease Taxes:

For tax changes, the formula is adjusted because the initial change in disposable income is reduced by the MPC:

ΔT × MPC × Multiplier = ΔY

ΔT × 0.8 ×5 = 500

ΔT = 500/0.8×5

ΔT = 125

Hence, the correct option is c.

Complete question:

Actual output is $2,000, potential output is $2,500, and the marginal propensity to consume (MPC) is 0.8. Which will return the economy to potential output?

a) Increase government spending by $125.

b) Increase government spending by $500.

c) Decrease taxes by $125.

d) Increase taxes by $125.

Actual output is $2,000, potential output is $2,500, and the marginal propensity to consume (MPC) is 0.8. Which action will return the economy to potential output?A. Increase government spending by $125.B. Increase government spending by $500.C. Decrease taxes by $125.D. Increase taxes by $125.

Answer :

Other Questions