Consider Two Economies,A and B

question 54

Multiple Choice

Consider two economies,A and B.Economy A has a marginal propensity to consume of 0.9,a net tax rate of 0.1 and a marginal propensity to import of 0.1.Economy B has a marginal propensity to consume of 0.6,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Suppose there is a decrease in autonomous investment of $5 billion in each of these economies.Which of the following statements is true?

• A)The AD curve shifts farther to the left in Economy A than Economy B.
• B)The AD curve shifts farther to the right in Economy A than Economy B.
• C)The AD curve shifts to the left the same amount in both economies.
• D)The AD curve shifts to the right the same amount in both economies.
• E)The simple multiplier is larger in Economy B.

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Definitions:

Security Agreement

A legal document that provides a lender a security interest in a specific asset or property pledged as collateral.

Secured Goods

Items that are used as collateral for a loan or are subject to a security interest, ensuring the fulfillment of an obligation.

Acceleration

A provision in a mortgage agreement that allows the mortgagee to demand the entire balance due when the mortgagor misses a single installment payment.

Debt Due

The amount of money that is owed and should be paid, typically by a specific deadline or upon demand.