Consider a Simple Macro Model with a Constant Price Level

question 25

Multiple Choice

Consider a simple macro model with a constant price level and demand- determined output. If the marginal propensity to spend is 0.9, the simple multiplier is

• A)0.1.
• B)1.0.
• C)0.9.
• D)1.1.
• E)10.0.

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Definitions:

Production Possibilities Frontier

A curve depicting all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors.

Increasing Opportunity Cost

A principle that states as more resources are dedicated to an activity, the cost of producing an additional unit increases.

Bowed Inward

Describes a concave shape of an economic curve, such as the production possibility frontier, indicating increasing opportunity costs.

Bowed Out

A term used to describe a situation where a party withdraws from an agreement, competition, or situation.