In the Short-Run Keynesian Model Where the Marginal Propensity to Consume

question 77

Multiple Choice

In the short-run Keynesian model where the marginal propensity to consume is 0.5, to offset an expansionary gap resulting from a $1 billion increase in autonomous consumption, government purchases must be:

• A)increased by $1 billion.
• B)decreased by $1 billion.
• C)decreased by $0.5 billion.
• D)decreased by $2 billion.

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Definitions:

Expense Account

An account that tracks money spent on business operations, often categorized for budgeting and tax purposes.

Asset Account

An account that represents resources owned or controlled by a company from which future economic benefits are expected.

Liabilities

Financial obligations or debts that a company owes to others, which must be paid back in the future.

Personal Truck

A privately-owned motor vehicle, used for personal transportation rather than for business or commercial purposes.