Consider the Simplest Macro Model with Demand-Determined Output

question 114

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 $3.5 billion.The marginal propensity to spend in this economy is 0.6.What is the eventual total new expenditure in this economy due to the increase in investment?

• A)$2.1 billion.
• B)$5.8 billion.
• C)$3.5 billion.
• D)$7.0 billion.
• E)$8.75 billion.

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