Use the Following to Answer Questions

question 38

Multiple Choice

Use the following to answer questions
Exhibit: Investment Demand and Aggregate Demand
Figure 14-3
Panel (a)
Panel (b)

-(Exhibit: Investment Demand and Aggregate Demand)
Suppose the interest rate falls from 6% to 4.8%.The quantity of investment demanded rises by (I_a - I_b)
As shown in Panel (a)
.At a given price level, P₁, this causes the aggregate demand curve to shift from C to D as shown in Panel (b)
.What is the size of this shift?

• A)The distance CD is equal to (I_a - I_b).
• B)The distance CD is equal to [MPC *(I_a - I_b)] where MPC = marginal propensity to consume.
• C)The distance CD is equal to [MPI * (I_a - I_b)] where MPI = marginal propensity to invest.
• D)The distance CD is equal to [Im *(I_a - I_b)] where Im = investment spending multiplier.

---

Definitions:

Indirect Quote

A foreign exchange rate quoted as the domestic currency per unit of the foreign currency.

Journal Entry

A record in the accounting ledger that represents a single financial transaction, showing debit and credit accounts affected.

Call Option

A financial contract giving the buyer the right, but not the obligation, to purchase an asset at a specified price within a certain time period.

Spot Exchange Rates

The current exchange rate at which a currency can be bought or sold for immediate delivery.