Consider the Simplest Macro Model with Demand-Determined Output

question 114

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 $3.5 billion.The marginal propensity to spend in this economy is 0.6.What is the eventual total new expenditure in this economy due to the increase in investment?

• A)$2.1 billion.
• B)$5.8 billion.
• C)$3.5 billion.
• D)$7.0 billion.
• E)$8.75 billion.

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Definitions:

Withdrawals

The act of taking out cash or other assets from a business by the owner for their personal use.

Capital

Capital refers to financial assets or the financial value of assets, such as funds held in deposit accounts, as well as the physical factors of production including machinery and buildings.

Prepaid Insurance Expense

The portion of insurance premiums that have been paid in advance and are recognized as an asset until the insurance coverage relates to future periods.

Advertising Expense

Costs incurred in promoting products or services to attract sales or increase brand awareness.