If the Marginal Propensity to Consume Is 0

question 7

Multiple Choice

If the marginal propensity to consume is 0.8 and the proportional income tax rate is 0.25, by how much would the equilibrium level of real GDP demanded increase if government purchases rose by $50 billion?

• A)$50 billion
• B)$100 billion
• C)$500 billion
• D)$125 billion
• E)$275 billion

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Definitions:

Interest Rate

The percentage charged or paid for the use of money on a yearly basis.

Guaranteed

A commitment or assurance, often by a third party, that certain conditions will be fulfilled, including payments or the performance of contractual obligations.

Interest Rate

The rate at which a portion of money is applied as a fee for its loan, commonly expressed per annum.

Present Value

The calculated present value of future monetary sums or cash flow series, with a defined rate of return.