QUESTION 13 Recall that expansionary fiscal policy (fiscal stimulus) can be eith

Question

QUESTION 13 Recall that expansionary fiscal policy (fiscal stimulus) can be either an increase in direct government spending or some form of tax cut or tax rebate Suppose a tax cut of $204 billion is proposed, and the MPC for the economy is 0.8 By how much would consumer savings increase initially? Round your answer up or down to the nearest whole number. Do not include a dollar sign or decimal point in your answer. Your answer should be a two-digit value such as 99. Do not include all of the zeros in your answer.

Explanation / Answer

Answer

Increase in consumer saving=tax cut *(1-MPC)

=204*(1-0.8)

=40.8

The increase in saving is $41 Billion

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