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:

Sales On Account

Transactions where goods or services are sold with the understanding that payment will be made at a later date, typically recorded as accounts receivable.

Working Capital

Refers to the difference between a company's current assets and current liabilities, indicating its short-term liquidity and ability to fund its operations.

Financial Data

Information related to money matters of a company, including its revenue, expenses, profits, and losses.

Sales On Account

Transactions where goods or services are sold with payment to be received at a later date, typically recorded as accounts receivable on the balance sheet.