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.

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Definitions:

Demand

The level of demand for a good or service that purchasers can and want to buy across a range of prices within a certain time frame.

Market Wage Rate

The prevailing pay rate for a specific job in the labor market, influenced by factors like supply and demand.

Equilibrium Quantity

The amount of products or services offered and sought at the equilibrium price, a point where the supplied quantity matches the demanded quantity.

Equilibrium Price

The cost at which the amount of a product that buyers want to purchase matches the amount sellers are willing to offer, leading to a balanced market situation.