Author Question: If the marginal propensity to save is equal to 0.5 in the simple Keynesian model, then a 10-unit ... (Read 37 times)

cherise1989 · **on:** Jun 30, 2018

If the marginal propensity to save is equal to 0.5 in the simple Keynesian model, then a 10-unit increase in government spending will cause output to rise by

a. 5 units.
b. 10 units.
c. 20 units.
d. 25 units.
e. 40 units.

Question 2

Briefly explain why gross domestic product is not a welfare measure.

What will be an ideal response?

SomethingSomething · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

C

Answer to Question 2

Gross domestic product measures production of goods and services. It is neither a measure of welfare nor a measure of material well-being. GDP does not give any weight to leisure and it also fails to subtract some welfare costs of production.