Consider Two Economies,A and B

question 126

Multiple Choice

Consider two economies,A and B.Economy A has a marginal propensity to consume of 0.9,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Economy B has a marginal propensity to consume of 0.7,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Suppose there is an increase in autonomous investment of $5 billion in each of these economies.Which of the following statements is true?

• A)There is a larger decrease in real GDP in Economy B as a result of the change in autonomous investment.
• B)There is a larger decrease in real GDP in Economy A as a result of the change in autonomous investment.
• C)There is a larger increase in real GDP in Economy B as a result of the change in autonomous investment.
• D)There is a larger increase in real GDP in Economy A as a result of the change in autonomous investment.
• E)There is an equal effect on real GDP in Economies A and B as a result of the increase in autonomous investment.