In the Simple Keynesian Model with No Government or Foreign

question 58

Multiple Choice

In the simple Keynesian model with no government or foreign sectors, suppose that 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) $10.8 trillion
• C) $12 trillion
• D) $12.5 trillion

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