Question 1
Let the mpc
d = 0.75. The government increases its expenditure on the NHS by £500 million and simultaneously raises income taxes by £500 million. Aggregate demand in the economy will
◦ remain the same.
◦ rise by £125 million.
◦ fall by £125 million.
◦ rise by £500 million.
Question 2
If the mpc
d is 0.6, the tax multiplier is
◦ -1.67.
◦ -0.67.
◦ -2.5.
◦ -1.5.