Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose 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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