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:

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