In the Simple Keynesian Model with No Government and Foreign

question 192

Multiple Choice

In the simple Keynesian model with no government and foreign sectors, suppose that initially the economy is in equilibrium at an output level of $10 trillion with a marginal propensity to consume of 0.8. If investment spending increases by $0.5 trillion, what is the new equilibrium output level?

• A) $10.5 trillion
• B) $12.5 trillion
• C) $12.0 trillion
• D) $10.8 trillion

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