If a $200 Billion Increase in Investment Spending Creates $200

question 216

Multiple Choice

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is

• A)4.
• B)5.
• C)3.33.
• D)2.5.

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Definitions:

Market Imbalances

Situations where the quantity supplied of a good does not equal the quantity demanded, leading to surpluses or shortages.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price.

Market Equilibrium

The state in economics where the supply of goods matches demand, leading to stable prices.

Price Floor

A minimum price set by the government or a regulatory body, below which a good or service cannot legally be sold.