Consider an Economy Whose Households Save 20% of Increases in Their

question 185

Multiple Choice

Consider an economy whose households save 20% of increases in their income. If the government lowers its transfers by $100 billion, then the real GDP will:

• A)decrease by $125 billion.
• B)decrease by $400 billion.
• C)increase by $125 billion.
• D)decrease by $500 billion.

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Definitions:

Savings Rate

The proportion of disposable income that individuals or households save rather than spend on consumption.

Educational System

The organized network of formal and informal structures that collectively provide education and learning environments and experiences to individuals in a society.

Computer Skills

The ability to operate, manage, and utilize computers and related technology efficiently for various tasks and applications.

Productivity Growth

Refers to the increase in the amount of goods and services produced per unit of input over a period of time.