Scenario 34-2

question 67

Multiple Choice

Scenario 34-2.The following facts apply to a small,imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2.For this economy,an initial increase of $500 in government purchases translates into a

• A)$1,388.89 increase in aggregate demand in the absence of the crowding-out effect.
• B)$3,125.00 increase in aggregate demand in the absence of the crowding-out effect.
• C)$1,135 increase in aggregate demand when the crowding-out effect is taken into account.
• D)$3,125.00 increase in aggregate demand when the crowding-out effect is taken into account.

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Definitions:

Capital Intensity Ratio

The capital intensity ratio measures the amount of capital needed per dollar of revenue; a higher ratio indicates that more assets are needed to generate income.

2018 Data

Information or statistics from the year 2018, typically used for analytical or comparison purposes.

Excess Capacity Scenario

A situation in which a company or economy can produce more goods or services than currently being produced without incurring additional costs.