Suppose that income taxes are reduced by $400 billion and households increase consumption by 80% of the resulting change in disposable income. Suppose also that the multiplier is 2. What is the marginal propensity to consume?
A) 0.2
B) 0.4
C) 0.8
D) 1.6
Ans: C) 0.8
You might also like to view...
"Because monetary policy must be approved by the president of the United States, the president is chair of the Federal Open Market Committee." Analyze the previous statement—is it correct or incorrect?
What will be an ideal response?
A dieter who prefers to eat small portions at his next meal, but chooses a large portion at mealtime when it arrives is:
A. dynamically consistent. B. statically consistent. C. exhibiting a present bias. D. exhibiting a substitution bias.
A decrease in the relative price of economics textbooks will raise the aggregate quantity of an economy's goods and services demanded
a. True b. False Indicate whether the statement is true or false
The accelerator is an integral part of
a. externally generated cycles b. the war-induced cycle c. the housing cycle d. the innovation cycle e. internally generated cycles