Suppose Investment Falls by $200 and Equilibrium Output Falls by $500

question 87

Multiple Choice

Suppose investment falls by $200 and equilibrium output falls by $500. Given this information, we know that:

• A) the marginal propensity to consume = 0.9.
• B) the marginal propensity to consume = 0.75.
• C) the marginal propensity to consume = 0.8.
• D) none of the above

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Definitions:

Classical Economists

Economists from the 18th and 19th centuries who focused on the free market, advocating for limited government intervention.

Keynesian

Relating to the economic theories of John Maynard Keynes, advocating for increased government expenditures and lower taxes to stimulate demand and pull the global economy out of depression.

Classical

Pertains to the classical school of economic thought, focusing on free markets and the self-regulating nature of economies, emphasizing the roles of competition and supply and demand.

Monetarists

Monetarists are economists who believe that variations in the money supply have major influences on national output in the short run and the price level over longer periods.