If the Marginal Propensity to Save Is 0

question 140

Multiple Choice

If the marginal propensity to save is 0.25 and income increases by $7,540, what is the increase in consumption?

• A) $1,885
• B) $5,655
• C) $10,053
• D) $30,160

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Definitions:

Nominal Interest Rate

The real interest rate plus the inflation rate.

Real Interest Rate

The interest rate adjusted for inflation, providing a more accurate measure of the cost of borrowing and the real yield to investors.

Wage-Price Spiral

A situation where rising wages increase disposable income, leading to higher demand for goods and services, which then leads to higher prices and further wage demands.

Higher Wages

Increased salaries or hourly rates paid to employees.