📚 Learning Guide
Investment Spending and GDP Change
medium

To find the minimum change in investment spending necessary to achieve a specified increase in GDP, we must understand the role of the ________, which indicates the proportion of additional income that is saved rather than spent.

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Learning Path
Learning Path

Question & Answer
1
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2
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3
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4
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Choose the Best Answer

A

Marginal Propensity to Save (MPS)

B

Average Propensity to Consume (APC)

C

Marginal Propensity to Consume (MPC)

D

Total Savings Rate

Understanding the Answer

Let's break down why this is correct

Answer

To find the minimum change in investment spending needed to achieve a certain increase in GDP, we need to understand the concept of the marginal propensity to save (MPS). The MPS shows how much of each additional dollar of income is saved instead of spent. For example, if the MPS is 0. 2, it means that for every extra dollar earned, 20 cents is saved and 80 cents is spent. This understanding helps us calculate how much more investment is needed to boost GDP because we can see how much of the new income will actually be spent in the economy.

Detailed Explanation

The Marginal Propensity to Save shows how much of extra income people save. Other options are incorrect because The APC tells us how much people spend on average from their income; The MPC shows how much of new income is spent, not saved.

Key Concepts

Investment Spending
GDP Change
Multiplier Effect
Topic

Investment Spending and GDP Change

Difficulty

medium level question

Cognitive Level

understand

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