Assume That the Marginal Propensity to Consume Is 0

question 260

Multiple Choice

Assume that the marginal propensity to consume is 0.8 and potential output is $800 billion. If real GDP is $850 billion, to bring the economy to potential output the government should:

• A)decrease spending by $50 billion.
• B)increase spending by $50 billion.
• C)decrease transfers by $50 billion.
• D)decrease spending by $10 billion.

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Definitions:

Insurance Company

An organization that provides risk management by offering compensation for losses in exchange for payment of premiums.

Fee Disclosure

A practice of informing clients or customers about charges and fees for services provided, ideally in a clear and understandable manner.

Preventive Care

Medical services and practices that focus on disease prevention and health maintenance rather than treatment of symptoms or conditions.