Scenario 21-1 $\$ 10,000$ , Consingtion Spending Is $\$ 6,500$ - Whan Income Is

question 174

Multiple Choice

Scenario 21-1. Take the following information as given for a small, imaginary economy:
- When income is $\$ 10,000$ , consingtion spending is $\$ 6,500$
- Whan income is $\$ 11,000$ , cansumption spending is $\$ 7,300$
-Refer to Scenario 21-1. For this economy, an initial increase of $500 in net exports translates into a

• A)$2,000 increase in aggregate demand when the crowding-out effect is taken into account.
• B)$2,500 increase in aggregate demand when the crowding-out effect is taken into account.
• C)$2,000 increase in aggregate demand in the absence of the crowding-out effect.
• D)$2,500 increase in aggregate demand in the absence of the crowding-out effect.

---

Definitions:

Wage and Price Controls

Government-imposed restrictions on the levels at which wages and prices can be set, usually to control inflation.

Inflation

A general increase in prices and decrease in the purchasing value of money.

Pure Capitalist Economy

An economic system characterized by private ownership of resources and the use of market mechanisms to allocate goods and services with minimal government intervention.

Government Role

The activities, responsibilities, and powers of a government in shaping society, economy, and ensuring public welfare.