If the MPC Is 0

question 13

Multiple Choice

If the MPC is 0.9, and the government cuts spending by $200 billion, the overall effect on GDP will be:

• A) a decrease of $2,000 billion.
• B) an increase of $2,000 billion.
• C) a decrease of $1,800 billion.
• D) an increase of $180 billion.

---

Definitions:

Inferior Goods

Goods whose demand decreases when consumer income rises, opposite of normal goods.

Normal Goods

Goods for which demand increases as the income of consumers increases.

GDP

Gross Domestic Product refers to the sum total of all monetary values of final goods and services produced within the geographical confines of a country during a given time frame.

Income Effect

The change in an individual’s or economy’s income and how that change will affect the quantity demanded of a good or service.