In the Simple Keynesian Model with No Government or Foreign

question 107

Multiple Choice

In the simple Keynesian model with no government or foreign sectors, assume that the economy is in equilibrium at an output level of $2 billion with a marginal propensity to consume of 0.9. If investment spending decreases by $0.05 billion, what is the new equilibrium output level?

• A) $1.5 billion
• B) $1.9 billion
• C) $1.95 billion
• D) $2.5 billion

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Definitions:

Straight-Line Method

An accounting method of depreciation where a fixed amount is charged annually over the useful life of the asset.

Net Liability

Net liability refers to the total liabilities of an entity minus its assets, indicating a financial position where obligations exceed resources.

Accrued Interest

Interest that has been incurred but not yet paid.