A $100 million increase in investment spending will cause read GDP to Select one

Question

A $100 million increase in investment spending will cause read GDP to

Select one:

a. decrease by less than $100 million

b. increase by more than $100 million

c. increase by less than $100 million

d. decrease by $100 million

e. increase by $100 million

the marginal propensity to consume is 0.5, then a $100 million increase in investment spending will lead to an increase of real GDP by

Select one:

a. $100 million

b. $50 million

c. $150 million

d. $200 million

e. $300 million

When income is $1,000, the level of consumption spending is equal to $850. When income rises to $1,200 the level of consumption spending is equal to $1,000. In this case the value of the marginal propensity to consume is

Select one:

a. 0.80

b. 0.50

c. 0.75

d. 0.85

e. 0.83

The marginal propensity to consume measures the

Select one:

a. increase in consumer spending when investment spending rises by $1

b. increase in disposable income when consumer spending rises by $1

c. increase in consumer spending when disposable income rises by $1

d. increase in disposable income when investment spending rises by $1

e. increase in consumer spending when taxes rise by $1

Explanation / Answer

A $100 million increase in investment spending will cause read GDP to

Select one:

b. increase by more than $100 million ( due to multiliper effect)

the marginal propensity to consume is 0.5, then a $100 million increase in investment spending will lead to an increase of real GDP by

d. $200 million ( 100/ (1 - 0.5) ) = 200

When income is $1,000, the level of consumption spending is equal to $850. When income rises to $1,200 the level of consumption spending is equal to $1,000. In this case the value of the marginal propensity to consume is

c. 0.75 ( 150 /200) = 0.75

The marginal propensity to consume measures the

Select one:

d. increase in disposable income when investment spending rises by $1

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