In the Keynesian-Cross Model, If the MPC Equals 0

question 78

Multiple Choice

In the Keynesian-cross model, if the MPC equals 0.75, then a $2 billion increase in government spending increases planned expenditures by _____ and increases the equilibrium level of income by _____.

• A)$2 billion; $4 billion
• B)$0.75 billion; $1 billion
• C)$0.75 billion; $0.75 billion
• D)$1 billion; $4 billion

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Definitions:

Demand Curve

A graph showing the relationship between the quantity of a good or service that consumers are willing to buy and its price.

Monopolistically Competitive Market

A market structure characterized by many firms selling similar but not identical products, with each having some control over its own prices.

Economic Profit

The profit a company makes after subtracting both its explicit and implicit costs.

Monopolistically Competitive Industry

An industry characterized by many firms, differentiated products, and free entry and exit.