Scenario 11-1
The information below is relevant to the following question(s).
Assume IBM decides,despite an ongoing recession,to build a new branch for computer analysis in Bozeman,Montana.The plant expects to spend $12 million to hire the necessary employees,all of whom move in from out of state to take the jobs.
-Refer to Scenario 11-1.If Bozeman citizens decided to spend more than 3/4 of the additional income,
A)the MPC would decrease.
B)the expenditure multiplier would decrease.
C)the expansion in income would be larger.
D)aggregate expenditures would decline.

Question

Quizplus · Accepted Answer

If Bozeman citizens decide to spend more than 3/4 of the additional income, the MPC (marginal propensity to consume) would be high and the multiplier effect would be larger. This means that the expansion in income would be greater as each dollar spent by the new employees would be respent by the citizens, leading to more economic growth. Therefore, option C is the best choice.

Scenario 11-1 The Information Below Is Relevant to the Following Question(s)