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Consider the simplest macro model with demand-determined output.Suppose an increase in business confidence leads firms to increase investment in new equipment by $100 million.The marginal propensity to spend in this economy is 0.75.What is the increase in expenditure in this economy during the second round of spending?
Complements
Goods or services that are used together, where an increase in demand for one leads to an increase in demand for the other.
Income Elasticity
A measure of how much the demand for a good or service changes in response to a change in consumers’ income.
Normal Good
A type of good for which demand increases as consumer income rises, and decreases as consumer income falls.
Income Elasticity
Income elasticity of demand measures how much the quantity demanded of a good changes as consumer income changes.
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