-Suppose the MPC in the Economy in Figure 10

question 23

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:

Projects

Planned sets of interrelated tasks to be executed over a fixed period and within certain cost and other limitations.

Risk Premium

A risk premium is the additional return expected by an investor for taking on a higher level of risk, compared to a risk-free investment.

Expected Return

The average return anticipated on an investment based on its historical or probable future earnings.

Market Risk Premium

The additional return expected by investors for holding a risky market portfolio instead of risk-free assets.