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Suppose That Consumers Become More Pessimistic About the Future And

Question 101

Multiple Choice

Suppose that consumers become more pessimistic about the future and, as a result, reduce their consumption by $10 billion. If the marginal propensity to consume is 0.80, how will this $10 billion reduction in consumption affect the equilibrium level of real GDP?


A) Real GDP will decrease by $8 billion.
B) Real GDP will decrease by $10 billion.
C) Real GDP will decrease by $40 billion.
D) Real GDP will decrease by $50 billion.

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