Consider a Model in Which Output Is Demand-Determined

question 114

Multiple Choice

Consider a model in which output is demand-determined.If the marginal propensity to spend out of national income is 0.4,then a $0.6 billion decrease in government purchases will cause equilibrium national income to ________ by approximately ________.

• A)decrease; $1.50 billion
• B)decrease; $1.00 billion
• C)decrease; $0.24 billion
• D)increase; $1.00 billion
• E)increase; $1.50 billion

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Definitions:

Crude Quantity Theory

A simplified version of the quantity theory of money suggesting that an increase in money supply leads to a proportional increase in prices.

M

A symbol often representing money supply in economic discussions, including various measures like M1, M2, and M3.

Q

Quantity, frequently used in economic equations and discussions to denote the amount of goods produced or consumed.

PQ

The product of price (P) and quantity (Q), often used in economics to calculate total revenue or expenditure.