Assume That the Marginal Propensity to Consume Is 0

question 128

Multiple Choice

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. The government spending multiplier is:

• A)0.8.
• B)1.25.
• C)5.
• D)4.

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Definitions:

Net Exports

One country’s exports to other countries minus its imports from other countries.

Current Account

A component of a country's balance of payments that includes the trade balance, net income from abroad, and net current transfers.

Current Account Deficit

A situation where a country's total imports of goods, services, and transfers are greater than its total exports.

Merchandise Trade Deficits

A situation where a country's imports of goods exceed its exports, leading to more money leaving the country than coming in from merchandise trade.