In the Simple Aggregate Expenditure Model Where All Components of Aggregate

question 203

Multiple Choice

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, suppose when autonomous aggregate expenditures rise by $500 billion, equilibrium real GDP increases by $2,500 billion. Which of the following statements is true?

• A) The MPS = 0.8.
• B) The MPC = 0.2
• C) The MPS = 0.2.
• D) The MPC = 5.

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Definitions:

Demand Equation

A mathematical expression that relates the quantity demanded of a good to its price and other factors influencing demand, typically in the form of Qd = f(P, ...), where Qd is quantity demanded, P is price, and ... represents other determinants.

Equilibrium Quantity

The quantity of goods or services supplied is equal to the quantity demanded at the market equilibrium price.

Commodity X

A placeholder term typically used to represent any generic good or service in economic models and discussions.

Demand Equation

A mathematical representation of the relationship between the demand for a good and its price, often also considering other determinants of demand.