Use the Information Below to Answer the Following Questions

question 137

Multiple Choice

Use the information below to answer the following questions.
Fact 11.5.1
An economy has a consumption function of C = 10 + 0.8Y, investment equal to 6, government expenditure equal to 10, exports equal to 10, and an import function of M = 0.1Y.
-Refer to Fact 11.5.1.If autonomous consumption increases by 10, what is the new equilibrium real GDP for this economy?

• A)86.67
• B)460
• C)120
• D)153.33
• E)230

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Definitions:

Infinitely Elastic

Describes a market situation in which the quantity demanded or supplied changes by an unlimited amount in response to any change in price, indicative of perfect competition.

Elastic

A term used in economics to describe a situation in which the supply or demand for a good or service is sensitive to changes in price.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of that good consumers are willing and able to purchase, ceteris paribus.

Price Elasticity

The measure of how much the quantity demanded of a good responds to a change in the price of that good, expressing the sensitivity of demand to price changes.