If the Marginal Propensity to Consume Is 0

question 327

Multiple Choice

If the marginal propensity to consume is 0.8 and the government spending decreases by $50 million, then equilibrium GDP will decrease by:

• A)$40 million.
• B)$50 million.
• C)$200 million.
• D)$250 million.

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Definitions:

Petty Cash Account

A small fund kept on hand for incidental cash expenses, maintained through a system of documenting each withdrawal and replenishment.

Fund Replenishing

The process of restoring the balance of a fund to its original level or to a desired level after it has been depleted.

Fund Shortages

A situation where the available financial resources are insufficient to cover the expected or required expenses.

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates.