if the MPC in an economy is .75, the government could shift the aggregate demand curve leftward by a $60 bill by increasing taxes by $20 Billion. Option C is correct.
The eventual rise in real GDP that will follow from a change in taxes is revealed by the tax multiplier. It's interesting to note that the tax multiplier is always exactly one less than the expenditure multiplier.
The marginal propensity to consume is a measure of induced consumption, which is the idea that an increase in disposable income leads to an increase in personal consumer spending. The propensity to consume is the percentage of disposable income that people spend on consumption.
Tax multiplier = - MPC / (1 - MPC) = - 0.75 / (1 - 0.75) = - 0.75 / 0.25 = - 3
Required increase in tax = Decrease in aggregate demand / Tax multiplier Increase in tax = $60 billion / 3 = $20 billion
Therefore, the required increase in tax is $20 Billion.
So, option C is the correct choice.
To know more about tax multipliers, refer to this link:
https://brainly.com/question/27256252
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COMPLETE QUESTION:
If the MPC in an economy is .75, the government could shift the aggregate demand curve leftward by $60 billion by:
A. reducing government expenditures by $60 billion.
B. increasing taxes by $15 billion.
C. increasing taxes by $20 billion.
