If the Marginal Propensity to Consume Is 0

question 9

Multiple Choice

If the marginal propensity to consume is 0.2 and there is a $10 million increase in one component of spending, the aggregate demand curve will shift horizontally to the right by:

• A) $8 million.
• B) $15 million.
• C) $2 million.
• D) $12.5 million.

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Definitions:

Profit-maximizing

Refers to the process by which a company determines the price and output level that returns the greatest profit.

MR = MC

An economic principle stating that optimal production level is reached when marginal revenue equals marginal cost.

Marginal Cost

The cost required to produce a subsequent unit of a product or service.

Marginal Cost Curve

A graphical representation showing how the cost of producing one additional unit of a good changes as production volume changes.