If We Observe That Every Increase in Income of $120

question 165

Multiple Choice

If we observe that every increase in income of $120 million generates an increase in consumption of $80 million, then the simple multiplier is

• A)2/3.
• B)3/2.
• C)2
• D)3
• E)8

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Definitions:

Maximize Utility

The process of allocating resources to obtain the highest possible satisfaction or utility.

Consumer Equilibrium

A state in which consumers are maximizing their satisfaction, with no incentive to alter their allocation of expenses across goods or services.

Marginal Utility

The change in total satisfaction or utility that a person receives from consuming one additional unit of a good or service.

Budget Line

Represents all the combinations of two goods that a consumer can afford given their prices and the consumer's income.