Use the Aggregate Expenditures Model and Assume the Marginal Propensity

question 11

Multiple Choice

Use the aggregate expenditures model and assume the marginal propensity to consume (MPC) is 0.80. An increase in government spending of $1 billion would result in an increase in GDP of:

• A) $0.8 billion.
• B) $1.0 billion.
• C) $5.0 billion.
• D) $8.0 billion.

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Definitions:

Federal Reserve System

The chief banking authority in the United States, tasked with the formulation of monetary policy and the oversight of banking institutions.

Deposit Insurance

Deposit insurance is a financial safeguard that protects depositors’ money in the event of a bank failure, guaranteeing a certain amount of an individual's deposits in member banks.

Commercial Banks

Financial institutions offering a range of services, including deposit accounts, loans, and credit.

Commodity Money

Money that has intrinsic value, such as gold or silver, used historically as a medium of exchange, unit of account, and store of value.