Suppose the Marginal Propensity to Consume Is 0

question 84

Multiple Choice

Suppose the marginal propensity to consume is 0.80 and equilibrium GDP resulting from a change in investment spending falls by -$500 billion.What must have been the initial change in investment spending

• A) $100 billion
• B) -$100 billion
• C) $500 billion
• D) -$500 billion
• E) -$400 billion

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Definitions:

Insurance

A financial agreement where a company provides compensation for specified losses, damage, illness, or death in exchange for premium payments.

Wealth

Refers to the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions.

Expected Utility Function

A mathematical representation of a decision-maker's preferences concerning uncertain outcomes, factoring in the utility of each outcome and its probability.

Utility Function

A formulation used in economics to depict how different combinations of goods or services yield varying levels of happiness or utility to an individual.