Suppose the MPC in the Economy in Figure 10

question 128

Multiple Choice

Suppose the MPC in the economy in Figure 10.2 equals 0.75 and the shift from AD₀ to AD₁ was caused by a decrease in investment of $50 billion.What will happen to the equilibrium level of real output as a result of the initial $50 billion decrease?

• A)It will fall by less than $200 billion.
• B)It will fall by exactly $200 billion.
• C)It will fall by more than $200 billion.
• D)It will fall by less than $67 billion.

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Definitions:

Net Operating Income

The income produced through a firm's principal commercial activities, not including the subtractions for interest and taxes.

Sales Volume

The total quantity of goods or services sold by a company in a specific period.

Least-Squares Regression

A statistical approach that finds the optimal fitting line by reducing the sum of the squares of the discrepancies between the actual and forecasted values.

Variable Cost

Costs that vary directly with the level of production or sales volume, such as materials and direct labor.