Suppose the Marginal Propensity to Consume in an Economy Is

question 7

Multiple Choice

Suppose the marginal propensity to consume in an economy is equal to 0.6. The government increases both taxes and spending by 100. What is the net effect on aggregate demand?

• A) Aggregate demand will increase by 100.
• B) Aggregate demand will fall by 100.
• C) Aggregate demand will increase by 40.
• D) Aggregate demand will fall by 40.

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Definitions:

Current Liabilities

Financial obligations or debts that a company is expected to settle within one year or within its operating cycle.

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent accounts, preparing the books for the next period.

Depreciation Expense

This is an accounting method used to allocate the cost of a tangible asset over its useful life.

Salaries and Wages Expense

The total cost incurred by an employer for employee compensation, including both salaries and hourly wages.