Other Things Being Constant, If the Marginal Propensity to Save

question 56

Multiple Choice

Other things being constant, if the marginal propensity to save (MPS) is 0.2, and private investment spending falls by $100 million, then real Gross Domestic Product (GDP)

• A) decreases by $50 million.
• B) increases by $80 million.
• C) decreases by $500 million.
• D) increases by $1 billion.

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Definitions:

Fixed Cost

Costs that do not vary with the level of production or sales, remaining constant within a specific range of activity.

Contribution Margin

The difference between a company's sales revenue and its variable costs.

Traceable Fixed Expenses

Fixed costs that can be directly linked to a specific business segment or operation.

Net Operating Income

A company's income after all operating expenses are deducted but before interest and taxes are accounted for.