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:

Quantity Demanded

Refers to the total amount of a good or service that consumers are willing and able to purchase at a given price level in a given time period.

Interest Rate

The segment of a loan applied as interest for the borrower, customarily shown as an annual percentage of the current loan outstanding.

Net Exports

The value of a country's total exports minus the value of its total imports. It is a measure of a nation's foreign trade balance.

Net Capital Outflow

The net flow of funds used for investments in foreign assets by a country minus the flow of investment funds into the country from abroad within a specified timeframe.