Consider the Simplest Macro Model with Demand-Determined Output

question 19

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 increase in expenditure in this economy during the initial first round of spending?

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