For a Marginal Propensity to Consume of 0

Multiple Choice

For a marginal propensity to consume of 0.9, the multiplier effect of an increase of $100 billion in government purchases of goods and services is larger than the multiplier effect of a tax cut of $100 billion because:

A) the government pays a higher price than households for the same goods and services.
B) production of the goods and services the government purchases has a bigger impact on real GDP than production of consumer goods.
C) many households fail to file their income tax and claim their refund.
D) in the first round of spending only $90 billion of the tax cut will be spent and $10 billion will be saved, while the entire $100 billion of government purchases will be spent.