Consider a Simple Macro Model with a Constant Price Level

question 82

Multiple Choice

Consider a simple macro model with a constant price level and demand- determined output. If the simple multiplier is 3 and there is a $2 million increase in autonomous investment spending, then the equilibrium level of income will increase by

• A)$6 million.
• B)$3 million.
• C)$4.5 million.
• D)$1.2 million.
• E)$2 million

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Definitions:

Utility Function

A representation of a consumer's preferences, modelling satisfaction obtained from consuming goods and services.

Interest Rate

The percentage of a sum of money charged for its use, often expressed annually.

Consumption

The use of goods and services by households, leading to a decrease in their quantity or quality.

Utility Function

An economic model that represents how different combinations of products or services can generate various levels of happiness or utility to a person, guiding choices.