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.

---

Definitions:

Defense Mechanism

Psychological strategies employed unconsciously to protect a person from anxiety arising from unacceptable thoughts or feelings.

Denial

A defense mechanism in which confrontation with a reality or problem is avoided by denying the existence of the problem or reality.

Physiological Stability

Refers to the body's ability to maintain a stable internal state despite external changes.

Addiction

A chronic, relapsing disorder characterized by compulsive drug seeking, continued use despite harmful consequences, and long-lasting changes in the brain.