Suppose the MPC in the Economy in Figure 10

question 111

Multiple Choice

Suppose the MPC in the economy in Figure 10.2 equals 0.75 and the shift from AD₀ to AD₁ was caused by a decrease in investment of $50 billion.What will happen to the equilibrium level of real output as a result of the initial $50 billion decrease?

• A)It will fall by less than $200 billion.
• B)It will fall by exactly $200 billion.
• C)It will fall by more than $200 billion.
• D)It will fall by less than $67 billion.

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Definitions:

Underwriting

The process by which lenders and insurers evaluate the risks involved in insuring or lending to individuals or businesses and establish the terms of coverage or loans.

Capital Gains Yield

The price appreciation component of the total return on an investment, represented as a percentage of the initial investment cost.

Dividend Yield

The dividend per share divided by the price per share, indicating how much a company pays out in dividends each year relative to its stock price.

Constant-Growth Model

A method used to value a company's stock by assuming a constant rate of dividend growth, often used for companies with stable growth rates.