Suppose the Marginal Propensity to Consume (MPC) Is 0

question 62

Multiple Choice

Suppose the marginal propensity to consume (MPC) is 0.8. To achieve a $500 billion increase in aggregate demand, other things constant, government purchases in an economy should increase by:

• A)$625 billion.
• B)$500 billion.
• C)$400 billion
• D)$100 billion
• E)$200 billion

---

Definitions:

Take-home Pay

The net amount of income that an employee receives after deductions like taxes, social security, and retirement contributions are subtracted from their gross salary.

Times Interest Earned

A financial ratio that measures a company's ability to meet its interest obligations, calculated by dividing earnings before interest and taxes by interest expenses.

Interest Expense

The cost incurred by an entity for borrowed funds, typically expressed as an annual interest rate on debts such as loans and bonds.

Income Before Depreciation

Earnings calculated by adding back depreciation expenses to net income, providing a view of profitability before accounting for asset depreciation.