Question

Scenario 34-2. the following facts apply to a small, imaginary economy. consumption spending is $5,200 when income is $8,000. consumption spending is $5,536 when income is $8,400. refer to scenario 34-2. in response to which of the following events could aggregate demand increase by $1,500?
a. a stock-market boom increases households’ wealth by $300, and there is an operative crowding-out effect.
b. a stock-market boom increases households’ wealth by $275, and there is an operative crowding-out effect.
c. an economic boom overseas increases the demand for u.s. net exports by $240, and there is no crowding-out effect.
d. aggregate demand could increase by $1,500 in response to any of these events.

Answer 1

I believe the closest possible answer to this question is b. a stock-market boom increases households’ wealth by $275, and there is an operative crowding-out effect.Thank you for your question. Please don't hesitate to ask in Brainly your queries

Answer 2

Answer:

C) an economic boom overseas increases the demand for u.s. net exports by $240, and there is no crowding-out effect.

Explanation:

Marginal propensity to consume (MPC) = change in Consumption / Change in income

MPC = ($5,536 - $5,200) / ($8,400 - $8,000) = 0.84

Marginal propensity to save (MPS) = 1 - MPC = 1 - 0.84 = 0.16

multiplier = 1 / MPS = 1 / 0.16 = 6.25

If you want to increase the aggregate demand by $1,500, you need a net increase = $1,500 / 6.25 = $240 million