Assume an economy with an upward-sloping aggregate supply curve and an MPC of 0.80.An increase in investment spending of $50 billion will most likely increase total income by

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With an upward-sloping aggregate supply curve and an MPC of 0.80, an increase in investment spending of $50 billion will shift the aggregate demand curve to the right, causing an increase in total income. The multiplier effect will determine the extent of the increase, which can be calculated as 1/(1-MPC) = 1/(1-0.80) = 5. Therefore, the increase in total income will be 5 times the increase in investment spending, or $250 billion. However, this is the maximum potential increase and assumes no crowding out or other external factors. Thus, the actual increase will be somewhere between $50 billion and $250 billion, making choice D the best answer.

Assume an Economy with an Upward-Sloping Aggregate Supply Curve and an MPC