Consider the Simplest Macro Model with Demand-Determined Output

question 23

Multiple Choice

Consider the simplest macro model with demand-determined output.Suppose an increase in business confidence leads firms to increase investment in new equipment by $30 million.The marginal propensity to spend in this economy is 0.9.What is the eventual total new expenditure in this economy due to the increase in investment?

• A)$3 million
• B)$30 million
• C)$27 million
• D)$270 million
• E)$300 million

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Definitions:

Elaboration Techniques

Strategies used to add detail or expand on a point or idea, often used in teaching and learning to deepen understanding.

Covariance

A measure of the joint variability of two random variables, giving insight into how the variables change together.

Coefficient Of Correlation

A numerical measure that indicates the strength and direction of a linear relationship between two variables, ranging from -1 to 1.

Linear Relationship

A type of correlation where the change in one variable is directly proportional to the change in another variable.