Within the Keynesian Model, If the Marginal Propensity to Consume

question 25

Multiple Choice

Within the Keynesian model, if the marginal propensity to consume is 0.8, which of the following is true?

• A) When consumption increases by $5, income increases by $1.
• B) When consumption increases by $1, saving increases by $5.
• C) When investment increases by $1, income increases by $5.
• D) When investment increases by $1, saving increases by $5.

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Definitions:

Cash Balances

The amount of available cash in a company's accounts at any given time, used to meet short-term obligations.

EOQ Model

An inventory management formula that identifies the optimum order quantity to minimize both ordering and holding costs.

Constant Demand

A condition in which the demand for a product or service remains unchanged over a particular period of time.

Ordering Costs

The expenses directly tied to the creation and processing of an order.