If the Marginal Propensity to Save Is 0

question 116

Multiple Choice

If the marginal propensity to save is 0.2 in a private closed economy, a $20 billion rise in investment spending will increase:

• A)GDP by $120 billion.
• B)GDP by $20 billion.
• C)saving by $25 billion.
• D)consumption by $80 billion.

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Definitions:

Inputs

Resources used in the production of goods and services, including labor, capital, materials, and technology.

Marginal Revenue Product

The extra income a company acquires by using an additional unit of input, like labor or capital.

Marginal Revenue Product

The additional revenue generated by employing one more unit of a resource, such as labor or capital, holding all other inputs constant.

Wage Rate

The amount of compensation paid to an employee per unit of time, often hourly or annually, reflecting the price of labor in a market.