Assume That the Marginal Propensity to Consume Equals 0

question 64

Multiple Choice

Assume that the marginal propensity to consume equals 0.8,the income tax rate equals 0.3,and the marginal propensity to import equals 0.2.The marginal leakage rate is ________ and the size of the multiplier is ________.

• A)0.70;3.33
• B)0.60;2.5
• C)0.64;1.56
• D)0.50;2.0

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Definitions:

Great Depression

A severe global economic downturn that lasted from 1929 to the late 1930s, marked by massive unemployment and the collapse of financial institutions.

Present Consumption

The act of using goods and services to satisfy current needs and desires rather than saving for future use.

Self-Control Problems

Refers to the difficulty people have in sticking with earlier plans and avoiding suboptimal decisions when finally confronted with a particular decision-making situation. A manifestation of time inconsistency and potentially avoidable by using precommitments.

Time Inconsistency

The human tendency to systematically misjudge at the present time what will actually end up being desired at a future time.