If the Marginal Propensity to Consume (MPC) Is 0

question 5

Multiple Choice

If the marginal propensity to consume (MPC) is 0.75, a $50 decrease in government spending, other things being equal, would cause equilibrium real GDP to:

• A) increase by $50.
• B) decrease by $50.
• C) increase by $200.
• D) decrease by $200.

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Definitions:

Reserve Ratio

A requirement set by central banks determining the minimum amount of reserves a bank must hold against deposits, influencing the bank's capacity to lend and create money.

Required Reserves

The minimum amount of funds that a bank or financial institution must hold in reserve, as mandated by a central bank or regulatory authority, to ensure financial stability and liquidity.

Bond Prices

The cost or market price of a bond, which moves inversely to changes in interest rates; when rates go up, bond prices go down, and vice versa.

Money Supply

refers to the total amount of monetary assets available in an economy at a specific time, including cash, coins, and balances held in checking and savings accounts.