Suppose Aggregate Output Is Demand Determined

question 68

Multiple Choice

Suppose aggregate output is demand determined.If the marginal propensity to spend is 0.5,and the MPC is 0.7,a $1 billion reduction in government purchases will cause equilibrium national income to ________ by ________.

• A)decrease; $3.33 billion
• B)decrease; $2.00 billion
• C)decrease; $1.50 billion
• D)increase; $2.00 billion
• E)increase; $3.33 billion

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Definitions:

Trust Agreement

A legal document establishing a trust and outlining the rules and guidelines that the trustees must follow in managing the trust assets for the benefit of the beneficiaries.

Present Value

The worth in present terms of a sum of money due in the future or sequences of cash receipts, using a given rate of return for discounting.

Discount Rate

The rate of interest applied to calculate the current value of future cash flows.

Cash Flows

The sum total of cash and assets similar to cash that shift into and out of a commercial establishment.