Suppose Fiona's base consumption equals $1,000 per month when her income is zero. Fiona earns $5,000 per month, and her marginal propensity to consume is 0.8 . If her monthly income increases by $1,500, her total consumption will be _____
a. $8,400
b. $10,000
c. $6,200
d. $4,800
c
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Starting from long-run equilibrium, a large increase in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; potential B. recessionary; higher; potential C. recessionary; lower; lower D. expansionary; higher; higher
Which of the following goods is likely to have an income elasticity of demand greater than one?
A) Salt B) Gasoline C) Diamond jewelry D) Bread
If a 5 percent increase in the price of good A leads to a 4 percent decrease in the demand for good B, then ________
A) the goods are substitutes B) only one good is a normal good C) the goods are complements D) both goods are normal goods
According to the law of supply
A. people buy less of a good when the price decreases. B. producers provide more of a good when the price decreases. C. people buy more of a good when the price increases. D. producers provide less of a good when the price decreases.