If the MPC in the economy is 0.75, government could shift the aggregate demand curve rightward by
$30 billion by cutting taxes by $10 billion.

Question

Quizplus · Accepted Answer

If the MPC is 0.75, then each $1 of tax cut will increase consumer spending by $0.75. Therefore, a tax cut of $10 billion would increase aggregate demand by $7.5 billion ($10 billion x 0.75), and to shift the aggregate demand curve rightward by $30 billion, a tax cut of $40 billion would be needed ($30 billion / 0.75).

If the MPC in the Economy Is 0