In the short-run Keynesian model where the marginal propensity to consume is 0.5, to offset a recessionary gap

Question

In the short-run Keynesian model where the marginal propensity to consume is 0.5, to offset a recessionary gap resulting from a $1 billion decrease in autonomous consumption, transfers must be:

A. increased by $1 billion.

B. decreased by $1 billion.

C. increased by $2 billion.

D. decreased by $2 billion.

E. increased by $.5 billion.

Answer 1

E. increased by $0.5 billion.