If the Marginal Propensity to Consume Is 0

question 192

Multiple Choice

If the marginal propensity to consume is 0.75 and investment spending decreases by $20 billion,what will be the overall effect on GDP?

• A) GDP will decrease by $20 billion
• B) GDP will increase by $15 billion
• C) GDP will decrease by $80 billion
• D) GDP will decrease by $30 billion
• E) GDP will decrease by $26.7 billion

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Definitions:

Total Market

The complete pool of potential buyers and sellers in a market, including all segments and types of consumers and producers.

Monopolistic Competition

A market structure characterized by many firms selling products that are similar but not identical, allowing for significant competitive pressure but some degree of pricing power.

Price-Output Decisions

The process by which firms decide at what production levels and prices they will operate to maximize profits.