Suppose that in an economy with lump-sum taxes and no international trade, autonomous investment spending increases by $2 million. If the marginal propensity to consume is 0.75, equilibrium gross domestic product will change by a maximum of

A) $0.5 million
B) $1.5 million
C) $2.0 million
D) $8.0 million
E) $15.0 million


Ans: D) $8.0 million

Economics

You might also like to view...

Which of the following generally becomes positive when the value of U.S. exports exceeds the value of U.S. imports?

A) capital and financial account B) the balance of payments account C) current account D) the official settlements account E) the exchange rate

Economics

Suppose that trade in asset is not allowed but the two countries sign a treaty that guarantee the sending of 25 tons of kiwi in good time by the high output country in that season. What will the outcome of such a treaty? Explain why

What will be an ideal response?

Economics

An advantage of discretionary policy might be that ________

A) it has been shown to be more efficient than rules B) it is more flexible than rules C) it requires a binding plan in advance to deal with economic problems D) all of the above E) none of the above

Economics

Suppose the capital stock increases by 10% and the number of employed workers increases by 5%. Given this information, explain what will happen to output and to output per worker

What will be an ideal response?

Economics