Suppose Lower Interest Rates Suddenly Lead to an Injection of $325

question 100

Multiple Choice

Suppose lower interest rates suddenly lead to an injection of $325 additional investment spending into the economy and the marginal propensity to consume is 0.80.Complete Table 10.1 by calculating the spending cycles as the increased investment spending works its way through the economy. $\begin{array}{lll} & \text { Change in this Cycle's } & \text { Cumulative Increase in } \\\text { Spending Cvcles } & \text { Spending and Income } & \text { Spending and Income }\\\hline\text { First-cycle spending }&\$325&\$325\\\text { Second-cvele spending }&\_\_\_&\_\_\_\\\text { Third-cycle spending }&\_\_\_&\_\_\_\end{array}$

$\text { Table } 10.1$ In Table 10.1,what will be the total increase in aggregate demand resulting from the initial $325 increase in investment expenditure after an infinite number of cycles?

• A)$1,040.
• B)$1,625.
• C)$3,965.
• D)$325.

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Definitions:

Refining Technology

The process and technology improvements involved in purifying raw materials, particularly in converting crude oil into gasoline, diesel, and other petroleum products.

Consumers' Income

The total amount of income available to consumers for spending and saving after income taxes have been accounted for.

Equilibrium Price

The market price where the supply of goods matches demand.

Equilibrium Quantity

The amount of goods or services supplied and demanded at the equilibrium price.