What is the impact of a $10 billion tax cut on consumer spending, if MPC is equal to 0.8?

Question

Quizplus · Accepted Answer

The impact of a tax cut on consumer spending can be found by applying the formula: tax cut × MPC. Given the MPC is equal to 0.8, the impact of a $10 billion tax cut on consumer spending would be $10 billion × 0.8 = $8 billion. Therefore, the total increase in consumer spending would be $8 billion, which is the same as the decrease in taxes. Thus, the correct answer is B ($8 billion/0.2 MPC = $40 billion).

What Is the Impact of a $10 Billion Tax Cut