If the Marginal Propensity to Consume Is 0

question 41

Multiple Choice

If the marginal propensity to consume is 0.8 and if government spending (G) rises by 50 while investment (I) falls by 20,by how much will equilibrium income rise?

• A)12
• B)10
• C)30
• D)120
• E)150

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Definitions:

Supply-siders

Supply-siders are economists or policymakers who believe that reducing tax rates and regulatory barriers to production and investment can stimulate supply, leading to economic growth.

Aggregate Supply

The total supply of goods and services that firms in an economy are willing and able to produce at different price levels during a specific time period.

Automatic Stabilizers

Changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policymakers having to take any deliberate action

Budget Deficit

A situation where a government's expenditures exceed its revenues over a specific period of time.