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Suppose Lower Interest Rates Suddenly Lead to an Injection of $325

Question 94

Multiple Choice

Suppose lower interest rates suddenly lead to an injection of $325 additional investment spending into the economy and the marginal propensity to consume is 0.80. Table 10.1
Spending CyclesFirst-cyclespendingSecond-cyclespendingThird-cyclespendingChange in this Cycle’s Spending and Income$325Cumulative Increase in Spendingand Income$325\begin{array}{c}\begin{array}{|l|}\hline\\ \text {Spending Cycles}\\\hline \text {First-cycle}\\\text {spending}\\\hline \text {Second-cycle}\\\text {spending}\\\hline \text {Third-cycle}\\\text {spending}\\\hline \end{array}\begin{array}{c|}\hline \text {Change in this Cycle's Spending}\\\text { and Income}\\\hline\\\quad\quad\quad\quad\quad\quad\quad\quad \$ 325 \\\hline\\\\\hline\\\\\hline\end{array}\begin{array}{c|}\hline \text {Cumulative Increase in Spending}\\ \text {and Income}\\\hline\\\quad\quad\quad\quad\quad\quad\quad\quad \$325\\\hline\\\\\hline\\\\\hline\end{array}\end{array}
In Table 10.1,what will be the total increase in aggregate demand resulting from the initial $325 increase in investment expenditure after an infinite number of cycles?


A) $1,040.
B) $1,625.
C) $3,965.
D) $325.

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