If the Marginal Propensity to Consume Is 0

question 90

Multiple Choice

If the marginal propensity to consume is 0.85 and there are no imports or income taxes,the expenditure multiplier is equal to

• A)1 - 0.85 = 0.15.
• B)0.85 × the change in autonomous expenditure.
• C)1 ÷ (1 - 0.85)= 1 ÷ 0.15 = 1.45.
• D)1 ÷ 0.85 = 1.176.
• E)0.85 ÷ 1 = 0.85.

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Definitions:

Marginal Utility

The additional satisfaction or benefit a consumer receives from consuming one more unit of a good or service.

Consumed

The act of using up a good or service, thus removing it from the market and contributing to economic activity.

Marginal Utility

The variation in pleasure or usefulness a consumer feels from using one more unit of a product or service.

Diminishing Marginal Utility

The principle that as a consumer consumes more of a good or service, the additional satisfaction gained from consuming an additional unit decreases.