Multiple Choice
Assume the marginal propensity to consume is 0.8 and potential output is $800 billion. If actual real GDP is $850 billion, which of the following policies would bring the economy to potential output?
A) Increase taxes by $50 billion.
B) Increase taxes by $10 billion.
C) Increase taxes by $12.5 billion.
D) Increase transfers by $12.5 billion.
Correct Answer:
Verified
Correct Answer:
Verified
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