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:

Scatter Diagram

A type of graph used in statistics to display values for two variables for a set of data, showing the relationship between the variables.

Linear Model

A statistical model assuming a linear relationship between the input variables (predictors) and a single output variable.

Income

The financial gain received by an individual or entity, usually through wages, investments, or business operations.

Least Squares Regression Line

A straight line that minimizes the sum of the squared differences between observed and predicted values in a dataset.