Suppose Economists Observe That an Increase in Government Purchases of $10

question 57

Multiple Choice

Suppose economists observe that an increase in government purchases of $10 billion raises aggregate expenditures by $30 billion. These economists would estimate that the marginal propensity to save is:

• A) 0.67.
• B) 0.33.
• C) 0.5.
• D) 20.

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Definitions:

Notes and Bonds

Financial instruments representing a loan made by an investor to a borrower, typically corporate or governmental, where bonds are longer-term than notes.

Fair Value

The estimated market value of an asset or liability, based on current conditions and mutually agreed upon by both buyer and seller.

Trading Investments

Financial assets that a company intends to buy and sell within a short time frame, typically to capitalize on short-term market movements.

Historical Cost

The original monetary value of an asset or investment at the time of its acquisition or payment, not adjusted for inflation or market changes.