An increase in taxes of a given amount will have a smaller impact on real GDP than a decrease in government purchases of equal amount because
A) tax increases reduce the incentive to spend and invest.
B) some of the additional tax will come from disposable income that would have been saved.
C) the decline in disposable income is less than the tax increases.
D) government purchases are subject to a larger multiplier than consumption purchases.
E) declines in government purchases occur only in textbooks,never in reality.
Correct Answer:
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Q121: If the multiplier is 2,the MPC is
A).1.
B).2.
C).5.
D).8.
E)1.0.
Q122: Suppose that we reduce the federal budget
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A).1.
B).2.
C).5.
D).8.
E)1.0.
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