Suppose That Investment Decreases by $15 Billion

question 59

Multiple Choice

Suppose that investment decreases by $15 billion. If the multiplier is 2.5, the aggregate demand curve

• A)shifts leftward by a horizontal distance of $37.5 billion.
• B)shifts leftward by a horizontal distance greater than $37.5 billion.
• C)shifts leftward by a horizontal distance less than $37.5 billion.
• D)shifts upward by a vertical distance of $37.5 billion.
• E)is not affected.

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Definitions:

Payback Method

An investment appraisal technique that calculates the amount of time required for an investment to generate cash flows sufficient to recover its initial cost.

Cash Inflows

Money or equivalent value received by a business, often from operations, investments, or financing activities.

Discounting

The process of determining the present value of a future amount of money or stream of income.

Payback Period

The length of time it takes to recover the cost of an investment.