(Advanced Analysis) Assume That the MPS Is 0

question 161

Multiple Choice

(Advanced analysis) Assume that the MPS is 0.33 in an economy that has an aggregate supply curve with a slope of 1.An increase in investment spending of $10 billion will shift the aggregate demand curve rightward by

• A)$30 billion and increase real GDP by $15 billion.
• B)$30 billion and increase real GDP by $30 billion.
• C)$10 billion and increase real GDP by $30 billion.
• D)$10 billion and increase real GDP by $10 billion.

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Definitions:

Long-run Equilibrium

Describes a state in a market where supply equals demand, with sufficient time for all factors of production to adjust and no external pressures.

Demand

The measure of a commodity or service consumers intend and are able to acquire at multiple price levels during a set time span.

Economic Profits

Profits exceeding the opportunity costs of all resources employed, including both explicit and implicit costs, signifying above-normal returns.

Long Run

An economic term referring to a period in which all factors of production and costs are variable, allowing for full adjustment to changes in the market.