Assume the Following

question 139

Multiple Choice

Assume the following. • The MPC has a value of 0.8.
• The relationship between the interest rate, r, and investment, I, is given by the equation, , where b is a positive constant.
• Government purchases, G, are increased by $1,000.
In which of the following cases would there be no crowding out?

• A) b=0
• B) b=0.2
• C) b=0.8
• D) b= 1

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Definitions:

Satisfaction

The feeling of fulfillment or contentment one derives from meeting a need or desire.

Marginal Utility

The added utility or pleasure derived by a consumer from consuming another unit of a good or service.

Additional Satisfaction

The joy or utility gained from consuming one more unit of a good or service.

Diminishing Rate

A principle stating that as one factor of production increases, while others stay constant, the resulting increase in output will eventually decrease.