Suppose the Propensity to Consume Equals 0

question 35

Multiple Choice

Suppose the propensity to consume equals 0.83. Given this information, which of the following events will cause the largest decrease in output?

• A) G decreases by 400.
• B) T increases by 400.
• C) I decreases by 250.
• D) c0 decreases by 350.
• E) I increases by 250.

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Definitions:

Substitute Goods

Products or services that can be used in place of each other because they fulfill similar needs or desires, often influencing the demand and price of goods.

Income Elasticity of Demand

A measure of how much the quantity demanded of a good changes in response to a change in consumers' income.

Normal Good

A type of good for which demand increases as the income of consumers increases, showing a positive relationship between income and demand.

Sellers

Individuals or entities that offer goods or services for sale in the market.