Question: Vandervenstan's MPC is 0.5 and the government decides to decrease spending on goods and services by $100 billion and decrease lump sum taxes by $50

Vandervenstan's MPC is 0.5 and the government decides to decrease spending on goods and services by $100 billion and decrease lump sum taxes by $50 billion. All else equal, the outcome of this policy will

A. return the economy to full employment.

B. leave the economy in a recessionary gap of $150 billion.

C. leave the economy in an inflationary gap of $100 billion.

D. leave the economy in a recessionary gap of $550 billion.

E. leave the economy in an inflationary gap of $50 billion.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!