Scenario 10.1 Imagine an Economy That Does Not Have International Trade and Trade

Scenario 10.1
Imagine an economy that does not have international trade and is originally in equilibrium. Then the government increases the level of spending by $350 million because it received a gift from abroad. In this economy, only 65 cents of every dollar is spent, and the rest is saved.
-What is the marginal propensity to consume for the economy described in Scenario 10.1?

A) 0.45
B) 0.85
C) 0.65
D) 0.35
E) Cannot be determined

Correct Answer:

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