Share
Explore BrainMass

The marginal propensity to save

Assume that initially G is $100 and equilibrium real GDP demanded is $1,000. If the multiplier is 4 and G increases to $200, real GDP demanded will increase
a. by $100
b. by $2,000
c. by $1,000
d. to $1,400
e. to $2,000

If autonomous net taxes decline by $40 billion and the MPC = 0.75, then equilibrium real GDP demanded
a. declines by $120 billion
b. increases by $120 billion
c. declines by $160 billion
d. increases by $160 billion
e. increases by $40 billion

Assume autonomous net taxes rise by $400; the marginal propensity to consume = 3/4. Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed. As a result, saving will initially
a. fall by $400
b. rise by $300
c. remain unchanged
d. fall by $100
e. rise by $100

Solution Preview

Assume that initially G is $100 and equilibrium real GDP demanded is $1,000. If the multiplier is 4 and G increases to $200,

real GDP demanded will increase
a. by $100
b. by $2,000
c. by $1,000
d. to $1,400
e. to $2,000

The increase in G will raise GDP by 4 times, i.e.,
rise in GDP = increase in G * ...

Solution Summary

The marginal propensity to save is calculated.

$2.19