Suppose that consumers become more pessimistic about the future and, as a result, reduce their consumption by $10 billion. If the marginal propensity to consume is 0.80, how will this $10 billion reduction in consumption affect the equilibrium level of real GDP?
a. Real GDP will decrease by $8 billion.
b. Real GDP will decrease by $10 billion.
c. Real GDP will decrease by $40 billion.
d. Real GDP will decrease by $50 billion.
d
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