If the Marginal Propensity to Consume Is 0

question 61

Multiple Choice

If the marginal propensity to consume is 0.8 and government transfers decrease 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:

Excess Supply

A situation where the quantity of a good supplied is greater than the quantity demanded at the current price.

Good Y

A non-specific term used in economic models to represent a product or service, usually contrasted with another good, referred to as "Good X."

Fertilizer Prices

The cost for fertilizers, which are chemical or natural substances added to soil to improve its fertility and the growth of plants.

Supply Of

Refers to the total amount of a product or service that is available for purchase at any given price point in a given market.