Suppose That the Marginal Propensity to Consume Is 0

question 36

Multiple Choice

Suppose that the marginal propensity to consume is 0.8 and investment spending increases by $100 billion. The increase in real GDP is:

• A) $100 billion, the same amount as investment spending.
• B) $125 billion, composed of $100 billion in investment spending and $25 billion in consumption.
• C) $80 billion, composed of $100 billion in investment spending and a decrease in consumption of $20 billion.
• D) $500 billion, composed of $100 billion in investment spending and $400 billion in consumption.

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