Suppose Aggregate Output Is Demand-Determined

question 88

Multiple Choice

Suppose aggregate output is demand-determined.If the simple multiplier is 4 and there is a $10 billion increase in planned investment spending,then equilibrium income will ________ and the marginal propensity to spend must equal ________.

• A)decrease by $40 billion; 0.75
• B)decrease by $10 billion; 0.25
• C)increase by $40 billion; 0.25
• D)increase by $40 billion; 0.75
• E)increase by $10 billion; 4.0

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Definitions:

Accounts Receivable

Money owed by customers to a company for goods or services that have been delivered but not yet paid for.

Inventory Turnover

A financial metric measuring the rate at which a company sells and replaces its stock of goods during a given period.

Cost of Goods Sold

Represents the direct costs attributable to the production of goods sold by a company, including materials and labor.

Return on Equity

A measure of a corporation’s profitability that reveals how much profit a company generates with the money shareholders have invested.