Consider the Simplest Macro Model with Demand-Determined Output

question 56

Multiple Choice

Consider the simplest macro model with demand-determined output.Suppose an increase in business confidence leads firms to increase investment in new equipment by $100 million.The marginal propensity to spend in this economy is 0.75.What is the eventual total new expenditure in this economy due to the increase in investment?

• A)$75 million
• B)$100 million
• C)$25 million
• D)$500 million
• E)$400 million

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Definitions:

Manufacturing Overhead

The indirect costs related to manufacturing that are not directly tied to a specific product, such as factory rent, maintenance, and utilities.

Job Cost Accuracy

The precision with which a company estimates and tracks the costs associated with specific jobs or projects.

Overhead Cost Driver

A factor that causes the cost of overheads to change, such as machine hours or labor hours.

Predetermined Overhead Rate

A rate estimated before a period begins, used to allocate overhead costs to products or job orders based on a chosen activity base.