If in an economy a $150 billion increase in investment spending creates $150 billion of new income in the first round of the multiplier process and $105 billion in the second round, the multiplier and the marginal propensity to consume will be, respectively,

If in an economy a $150 billion increase in investment spending creates $150 billion of new income in the first round of the multiplier process and $105 billion in the second round, the multiplier and the marginal propensity to consume will be, respectively,

A) 5.00 and 0.80
B) 4.00 and 0.75
C) 3.33 and 0.70
D) 2.50 and 0.40

Answer: C

If the marginal propensity to consume is 0.67 and initial spending increases by $25, real GDP will

If the marginal propensity to consume is 0.67 and initial spending increases by $25, real GDP will

A) increase by $75
B) decrease by $75
C) increase by $25
D) decrease by $25

Answer: C

If the marginal propensity to consume is 0.6 and real GDP falls by $25, this is caused by a decrease in initial spending of

If the marginal propensity to consume is 0.6 and real GDP falls by $25, this is caused by a decrease in initial spending of

A) $10.00
B) $15.00
C) $16.67
D) $20.00

Answer: A

If there was a change in investment spending of $10 and the marginal propensity to save was .25, then real GDP would increase by

If there was a change in investment spending of $10 and the marginal propensity to save was .25, then real GDP would increase by

A) $10
B) $20
C) $25
D) $40

Answer: D

Which best explains the variability of investment?

Which best explains the variability of investment?

A) the predictable useful life of capital goods
B) constancy or regularities in business innovations
C) instabilities in the level of profits
D) business pessimism about the future

Answer: C

Which would increase investment demand?

Which would increase investment demand?

A) an increase in business taxes
B) an increase in planned inventories
C) a decrease in the rate of technological change
D) an increase in the cost of acquiring capital goods

Answer: B