Suppose that Japan is a nation of savers with a marginal propensity to consume of 0.6 and that the United States is a nation of spenders with a marginal propensity to consume of 0.9.Which of the following statements is correct?
A) A small increase in spending will have a more powerful effect in starting a recovery in the United States than in Japan.
B) The Japanese economy is not in equilibrium.
C) The Japanese economy is more susceptible to a recession caused by a drop in spending.
D) The U.S.economy tends to overheat from too much spending.

Question

Quizplus · Accepted Answer

Marginal propensity to consume (MPC) represents the proportion of additional income that is spent on consumption. A higher MPC means that a nation is more likely to spend an increase in income, leading to a higher multiplier effect. The United States has a higher MPC than Japan, indicating that a small increase in spending will have a more significant effect in starting a recovery in the United States than in Japan. Therefore, option A is the correct answer. Options B, C, and D are invalid statements based on the given information.

Suppose That Japan Is a Nation of Savers with a Marginal