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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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<h3>What is net cash flow?</h3>

The net cash flow is the difference between the cash inflows and the cash outflows.  It can be positive or negative.  When the cash inflows are greater than the cash outflows, the net cash flow is positive.  The opposite is the case when the cash outflows exceed the cash inflows.

<h3>Data and Calculations:</h3>
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Thus, the net cash flow based on the spreadsheet is <u>A. $290.</u>

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