The Next Questions Refer to the Following Simple Keynesian Model

question 39

Multiple Choice

The next questions refer to the following simple Keynesian model.
Suppose C = 1000 + .9Y, G = 400, I = 100, (X - IM) = 0, and there are no income taxes.
-If investment falls by 50,equilibrium GDP will

• A) fall by 50
• B) fall by 5
• C) fall by 500
• D) fall by 45
• E) fall by half its previous value

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Definitions:

Money Supply

The total amount of monetary assets available in an economy at a specific time.

Gold Standard

A financial system in which the value of a nation's paper currency is directly tied to gold.

Lower Prices

A decrease in the cost of goods or services, often resulting from factors such as increased competition, lower production costs, or decreased demand.

Wages

The fixed regular payment, typically paid on a daily or weekly basis, made by an employer to an employee, especially to a manual or unskilled worker.