Assume That the Marginal Propensity to Consume Is 0

question 252

Multiple Choice

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If real GDP is $700 billion:

• A)there is an inflationary gap.
• B)there is a recessionary gap.
• C)the economy is in long-run equilibrium.
• D)government transfers should be decreased.

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Definitions:

Ecological Fallacy

A logical error in reasoning where conclusions about individual-level behaviors or attributes are derived from group-level data.

Exception Fallacy

A logical error where a conclusion is drawn about an entire group based on a few atypical examples.

Dominant Culture

The culture that holds the most power and is most widely accepted within a particular society, often shaping mainstream norms and values.

Negative Assessment

A critical or unfavorable evaluation of something.