Consider the Simplest Macro Model with Demand-Determined Output

question 23

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 $30 million.The marginal propensity to spend in this economy is 0.9.What is the eventual total new expenditure in this economy due to the increase in investment?

• A)$3 million
• B)$30 million
• C)$27 million
• D)$270 million
• E)$300 million

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Definitions:

Excise Taxes

Taxes imposed on specific goods or services, such as tobacco or alcohol, typically aimed at reducing consumption of these goods or raising revenue.

Inelastic Demand

Inelastic demand refers to a market condition where the quantity demanded of a good or service changes very little in response to price changes.

Excise Tax

A tax on the production, sale, or consumption of a particular good or service within a country.

Efficiency

The optimal use of resources to achieve the best possible outcome or output with the least waste of time and effort.