Suppose the MPC = 0

question 13

Multiple Choice

Suppose the MPC = 0.60 and government purchases increase by $40 billion.In Keynesian theory,which of the following is true?

• A) The TE curve shifts downward by $40 billion and Real GDP decreases by $40 billion.
• B) The TE curve shifts upward by $40 billion, and Real GDP increases by $40 billion.
• C) The TE curve shifts downward by $40 billion, and Real GDP decreases by $100 billion.
• D) The TE curve shifts upward by $40 billion, and Real GDP increases by $100 billion.

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Definitions:

Supply-Side Market Failure

Situations where the production or supply of a good or service leads to insufficient or excessive production, often due to externalities or lack of competition.

Demand-Side Market Failure

Demand-side market failure occurs when demand curves do not reflect consumers' full willingness to pay for a good or service, often due to externalities or public goods.

Government Failure

Occurs when government intervention in the economy creates inefficiency, leading to an allocation of resources that worsens rather than improves outcomes.

Consumer Surplus

The difference between the maximum amount consumers are willing to pay for a good or service and the actual price they pay, measuring the benefit consumers receive from purchasing at a lower price.