If the Marginal Propensity to Save Is 0

question 306

Multiple Choice

If the marginal propensity to save is 0.25, investment spending is $700 million, and the government increases its purchases of goods and services by $100 million, then real GDP increases by:

• A)$25 million.
• B)$175 million.
• C)$400 million.
• D)$2,800 million.

---

Definitions:

Short-run Losses

Financial losses that a firm experiences within a limited time period, usually due to fixed costs and market conditions.

Industry Entry

The process or act of starting a new venture or entering a market as a new competitor.

Competitive Price-searcher

A market participant who actively compares prices among different suppliers to find the best deal.

Free Entry and Exit

A market condition where firms can enter or leave an industry without facing major obstacles or costs.