Consider a hypothetical closed economy in which households spend $0.70 of each additional dollar they earn and save the remaining $0.30.

The marginal propensity to consume (MPC) for this economy is

A).3

B).7

C) 1

D) 1.43

E) 3.33

and the oversimplified multiplier for this economy is

A).3

B).7

C) 1

D) 1.43

E) 3.33

Suppose the government in this economy decides to decrease government purchases by $300 billion. The decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to

A) -$1,000 billion

B) -$90 billion

C) -$210 billion

D )-$500 billion

E) -$105 billion

This decreases income yet again, causing a second change in consumption equal to

A)-$1,000 billion

B) -$90 billion

C) -$210 billion

D) -$500 billion

E) -$107 billion

The total change in demand resulting from the initial change in government spending is

A)-$0.6 trillion

B) -$0.7 trillion

C) -$2.7 trillion

D)-$1 trillion