Exploring Fiscal Policy and Taxation Effects

What is the primary reason tax cuts have a different impact than government spending?

• Tax cuts are often larger than government spending.

• People tend to save the initial amount from a tax cut.

• Government spending directly affects the economy's total output.

• Tax cuts are more efficient in stimulating the economy.

Why does decreasing taxes have less of an effect than increasing government spending?

• Tax cuts benefit only the wealthy.

• Because it leads to higher interest rates.

• Due to the tendency of people to save the initial amount.

• It doesn't directly contribute to public goods.

What is the multiplier if the marginal propensity to consume is 0.5?

• 0.5

• 2

• 1

• 4

How much of a tax cut is actually spent in the economy if the cut was $20 billion and the MPC is 0.5?

• $10 billion

• $20 billion

• $5 billion

• $15 billion

To fully close a $40 billion gap with an MPC of 0.5, how much does the government need to cut taxes?

• $60 billion

• $80 billion

• $40 billion

• $20 billion

What is the new multiplier when the marginal propensity to consume is 0.8?

• 1

• 4

• 5

• 2

With an MPC of 0.8, how much of a tax cut would be saved if the government provided a $10 billion tax cut?

• $2 billion

• $8 billion

• $5 billion

• $10 billion

How much of the $10 billion tax cut is spent in the economy when MPC is 0.8?

• $10 billion

• $8 billion

• $2 billion

• $5 billion

What is the necessary tax cut to close a $40 billion gap with an MPC of 0.8?

• $10 billion

• $80 billion

• $20 billion

• $40 billion

What demonstrates the effectiveness of a tax cut in closing a recessionary gap?

• The size of the tax cut itself.

• The government's ability to enforce the tax cut.

• The amount of the tax cut that is saved by the people.

• The portion of the tax cut that is spent in the economy.