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# 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