Consider Two Economies,A and B

question 79

Multiple Choice

Consider two economies,A and B.Economy A has a marginal propensity to consume of 0.9,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Economy B has a marginal propensity to consume of 0.7,a net tax rate of 0.2 and a marginal propensity to import of 0.2.Suppose there is an increase in autonomous investment of $5 billion in each of these economies.Which of the following statements is true?

• A)The AD curve shifts farther to the left in Economy B than Economy A.
• B)The AD curve shifts farther to the right in Economy A than Economy B.
• C)The AD curve shifts to the left the same amount in both economies.
• D)The AD curve shifts to the right the same amount in both economies.
• E)The simple multiplier is larger in Economy A.

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Definitions:

Operating Divisions

Sections or branches within a company that focus on distinct lines of business or market areas, responsible for their own revenues, expenses, and operations.

Variable Costs

Variable costs are expenses that vary directly with the level of production output, such as materials and labor costs.

Fixed Costs

Charges that stay the same no matter the amount of goods produced or sold, such as rent, salaries, and insurance.

Peak-period Demand

The highest level of demand for a product or service within a specific time frame, often requiring additional resources.