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Stolb23 [73]
3 years ago
10

In an economy, the government wants to decrease aggregate demand by $24 billion at each price level to decrease real GDP and con

trol demand-pull inflation. If the MPC is .75, then it could increase taxes by: 
A. $6 billion
B. $8 billion
C. $10 billion
D. $12 billion
Business
1 answer:
irinina [24]3 years ago
3 0

Answer:

option b is correct answer

Explanation:

given data:

MPC = 0.75

We know that

MPC +MPS =1

So, MPS = 1 - 0.75 = 0.25

We know that tax multiplier is given as

Tax multiplier = \frac{-MPC}{(1-MPC)}

                       = \frac{-0.75}{(1-0.75)}

                       = -3

 change in taxes= \frac{24}{-3} = -8Billion

therefore, tax increase by $8 billion.

option b is correct answer

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