If the marginal propensity to consume is 07 and the governme

If the marginal propensity to consume is 0.7 and the government increases taxes by 10, then

a. The budget deficit increases by 10

b. Consumption increases by 7

c. Investment increases by 7

d. Public Savings decrease by 3

Solution

If Taxes increase then consumption decreases hence option A is incorrect

If taces increase then publi savings increase becuase Public Saving=Taxes Revenue-Expenditure hence Public savings should increases with Taxes option d also incorrect

as Taxes are increases government can generate higher revenuestherefore budget deficit should decrease hene option A is void

Option C is correct response