Assume There Is No Crowding-Out Effect

question 66

Multiple Choice

Assume there is no crowding-out effect.If an increase in government spending of $10 billion raises the total aggregate demand by $50 billion, then the marginal propensity is:

• A)0.2
• B)0.5
• C)5
• D)0.8

---

Definitions:

Positive Externality

A benefit that is enjoyed by a third-party resulting from an economic transaction to which they were not involved.

Public Good

A product or service that is non-excludable and non-rivalrous, meaning it can be consumed by multiple people without diminishing its availability to others.

Common Resource

A resource that is nonexcludable but rival in consumption.

Nonexcludable

A characteristic of a good or service that prevents people from being excluded from using it, often leading to challenges in private market provision.