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:

Equilibrium Price

The price at which the quantity of a product offered is equal to the quantity of the product demanded, leading to a stable market condition.

Equilibrium Quantity

The quantity of goods or services supplied and demanded at the point where the supply and demand curves intersect.

Supply Decreases

A situation where the quantity of a good or service that producers are willing and able to offer for sale at a given price is reduced.

Substitute Good

A product or service that can be used in place of another to satisfy consumer demand, offering an alternative choice.