In a condition where MPC is 0.5, a simultaneous increase in both taxes and government spending of $20 will increase GDP by $20. Therefore, the option C holds true.
<h3>What is the significance of GDP?</h3>
GDP of an economy is classified as a total of all the consumer goods and services produced in an economy during a given financial period, usually a year.
An increase in the taxes and government spending in an economy will lead to an increase in the GDP by the same rate. However, the proportion of change depends upon the MPC of an economy.
Therefore, the option C holds true and states regarding the significance of GDP.
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The question seems to be incomplete. It has been added below for better reference.
If MPC = 0.5, a simultaneous increase in both taxes and government spending of $20 will _____.
A. decrease GDP by $20.
B. decrease GDP by $40.
C. increase GDP by $20.
D. increase GDP by $40.
