A $500 billion increase in investment spending causes the equilibrium income in
ID: 1251578 • Letter: A
Question
A $500 billion increase in investment spending causes the equilibrium income in the country of Oncy to rise by $5,000 billion.What is the marginal propensity to consume in this economy?
A. 0.9
B. 0.6
C. 0.8
D. 0.5
Which of the following correctly describes the composition of the $5,000 billion rise in aggregate demand that occurs in Oncy?
A. Consumption spending increases by $3,000 billion; investment spending increases by $1,000 billion; saving increases by $1,000 billion
B. Government spending increases by $3,000 billion; investment spending increases by $500 billion; net exports decrease by $2,000 billion; consumption spending increases by $3,500 billion
C. Government spending increases by $2,500 billion; investment spending increases by $500 billion; net exports increase by $2,000 billion
D. Consumption spending increases by $4,500 billion; investment spending increases by $500 billion
A $500 billion increase in investment spending causes the equilibrium income in the country of Oncy to rise by $5,000 billion.
If Oncy was at full employment before the increase in investment spending, what is the situation in Oncy after the $500 billion increase in investment spending?
A. Full employment
B. An inflationary gap
C. A recessionary gap with cyclical unemployment
Explanation / Answer
A $500 billion increase in investment spending causes the equilibrium income in the country of Oncy to rise by $5,000 billion.
What is the marginal propensity to consume in this economy?
1/MPS = 1/(1-MPC) is known as the spending multiplier
so
10 = 1/MPS
MPS = 1/10
So MPC = 9/10
A. 0.9
B. 0.6
C. 0.8
D. 0.5
Which of the following correctly describes the composition of the $5,000 billion rise in aggregate demand that occurs in Oncy?
A. Consumption spending increases by $3,000 billion; investment spending increases by $1,000 billion; saving increases by $1,000 billion
B. Government spending increases by $3,000 billion; investment spending increases by $500 billion; net exports decrease by $2,000 billion; consumption spending increases by $3,500 billion
C. Government spending increases by $2,500 billion; investment spending increases by $500 billion; net exports increase by $2,000 billion
D. Consumption spending increases by $4,500 billion; investment spending increases by $500 billion
A $500 billion increase in investment spending causes the equilibrium income in the country of Oncy to rise by $5,000 billion.
If Oncy was at full employment before the increase in investment spending, what is the situation in Oncy after the $500 billion increase in investment spending?
A. Full employment
B. An inflationary gap because we have too "force" wages up to employ more people - we're spending too much
C. A recessionary gap with cyclical unemployment
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