When an Economy Is Operating Well Below Its Full-Employment Capacity

question 66

Multiple Choice

When an economy is operating well below its full-employment capacity and the marginal propensity to consume is 0.75, a $10 billion increase in investment spending will cause the equilibrium output to rise by:

• A) $5 billion.
• B) $10 billion.
• C) $20 billion.
• D) $40 billion.

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Definitions:

Pure Competition

Pure competition is a market structure characterized by a large number of small firms, a homogeneous product, free entry and exit from the market, and perfect information, leading to firms being price takers.

Product Differentiation

The process of distinguishing a product or service from others in the market to make it more attractive to a particular target market segment.

Advertising

The business or task of developing advertising content for commercial offerings.

Pure Competition

A market structure characterized by a large number of small firms, homogenous products, and free entry and exit, leading to minimal profit for the firms.