Suppose Lower Interest Rates Suddenly Lead to an Injection of $325

question 119

Multiple Choice

Suppose lower interest rates suddenly lead to an injection of $325 additional investment spending into the economy and the marginal propensity to consume is 0.80. Table 10.1
$\begin{array}{c}\begin{array}{|l|}\hline\\ \text {Spending Cycles}\\\hline \text {First-cycle}\\\text {spending}\\\hline \text {Second-cycle}\\\text {spending}\\\hline \text {Third-cycle}\\\text {spending}\\\hline \end{array}\begin{array}{c|}\hline \text {Change in this Cycle's Spending}\\\text { and Income}\\\hline\\\quad\quad\quad\quad\quad\quad\quad\quad \$ 325 \\\hline\\\\\hline\\\\\hline\end{array}\begin{array}{c|}\hline \text {Cumulative Increase in Spending}\\ \text {and Income}\\\hline\\\quad\quad\quad\quad\quad\quad\quad\quad \$325\\\hline\\\\\hline\\\\\hline\end{array}\end{array}$
In Table 10.1,what is the cumulative increase in expenditure by the end of the second cycle?

• A)$585.
• B)$390.
• C)$260.
• D)$65.

---

Definitions:

Technological Advance

The development and application of new technologies and processes that improve efficiency, productivity, or bring new products to the market.

Product Demand

The desire or need for a specific product or service combined with the capacity to purchase it.

Revenues

The income received by a business from its various activities, typically from the sale of goods and services to customers.