During Normal Times, If the Marginal Propensity to Consumer Is

Multiple Choice

During normal times, if the marginal propensity to consumer is 3/4, and the government borrows $10 billion in order to increase spending by that amount, real output will expand by

A) more than $40 billion, because both the additional borrowing and the additional spending will stimulate real output.
B) $40 billion, because the net multiplier will be 4.
C) less than $40 billion, because the additional borrowing will place upward pressure on real interest rates, weakening the impact of the multiplier.
D) $10 billion, because during normal times, the government can borrow funds without any increase in interest rates.