Calculate the total change in aggregate demand because of an initial $300 decrease in investment spending,given that C = 150 + 0.50Y_D. A)$300 decrease. B)$150 decrease. C)$1,200 decrease. D)$600 decrease.

Question

Quizplus · Accepted Answer

The formula for aggregate demand is: AD = C + I + G + NX Where: C = Consumer spending I = Investment spending G = Government spending NX = Net exports Substituting the given C equation, we get: AD = 150 + 0.50Y_D + I + G + NX If investment spending (I) decreases by $300, then we can substitute (-$300) for I and simplify: AD = 150 + 0.50Y_D - 300 + G + NX AD = -150 + 0.50Y_D + G + NX The total change in aggregate demand is the difference between the new AD equation and the original AD equation: Change in AD = (-150 + 0.50Y_D + G + NX) - (150 + 0.50Y_D + I + G + NX) Change in AD = -150 + 0.50Y_D + G + NX - 150 - 0.50Y_D - I - G - NX Change in AD = -300 - 0.50Y_D - I Substituting (-$300) for I, we get: Change in AD = -300 - 0.50Y_D - (-300) Change in AD = -300 + 300 - 0.50Y_D Change in AD = -0.50Y_D Therefore, the total change in aggregate demand is a decrease of $600, which is option D.

Calculate the Total Change in Aggregate Demand Because of an Initial