Assume that GDP = $10,000 and the MPC = 0.75. If policy makers want to increase GDP by 30 percent, by how much should they decrease taxes?

Question

Quizplus · Accepted Answer

To increase GDP by 30 percent from $10,000, it needs to be increased by $3,000. The multiplier is 1/(1-MPC) = 1/(1-0.75) = 4. Therefore, to achieve a $3,000 increase in GDP, taxes need to be decreased by $3,000 / 4 = $750. However, the correct calculation leads to $750, indicating a mistake in the question's options or my interpretation. The correct answer based on the provided options and the logic should be $750, but since that's not an option for the desired outcome, it seems there's a misunderstanding. Given the options and the explanation, none directly match the correct calculation, suggesting a potential error in the question or the interpretation of the answer choices.

Assume That GDP = $10,000 and the MPC = 0