Suppose that Japan is a nation of savers with a marginal propensity to consume

| November 24, 2016

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.

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