During Normal Times, If the Marginal Propensity to Consumer Is

question 12

Multiple Choice

During normal times, if the marginal propensity to consumer is 3/4, and the government borrows $10 billion in order to increase spending by that amount, real output will expand by

• A) more than $40 billion, because both the additional borrowing and the additional spending will stimulate real output.
• B) $40 billion, because the net multiplier will be 4.
• C) less than $40 billion, because the additional borrowing will place upward pressure on real interest rates, weakening the impact of the multiplier.
• D) $10 billion, because during normal times, the government can borrow funds without any increase in interest rates.

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Definitions:

Productivity

An economic measure of output per unit of input, often used to gauge efficiency in production or work.

Dexterity

Refers to the skill in performing tasks, especially with the hands.

Spearman's Rank Correlation

An unparameterized metric for ranking correlation that evaluates the extent to which two variables' relationship can be depicted through a monotonic function.

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