Question

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPC is 0.75, then it could rev: 06_13_2018 Multiple Choice increase taxes by $16 billion. increase taxes by $24 billion. decrease government purchases by $10 billion. decrease government purchases by $16 billion.

Answer 1

When the government decreases aggregate demand by $48 billion, there will be A. Increase in tax by $16 billion.

How to calculate the tax?

From the information given, in the economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation.

Therefore, the effect based on the MPC will be:

= $48 billion × 1/3

= $16 billion

In conclusion, the correct option is A.

Learn more about tax on:

https://brainly.com/question/25783927