Assume an economy with an upward-sloping aggregate supply curve and an MPC of .80.An increase in investment spending of $50 billion will most likely increase total income by

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An increase in investment spending will shift the aggregate demand curve to the right, leading to an increase in output and income. The specific total income increase can be calculated using the formula ΔY = (1/(1-MPC)) x ΔI, where MPC is the marginal propensity to consume. Plugging in the values, we get ΔY = (1/(1-0.8)) x 50 billion = $250 billion. However, it is unlikely that the entire increase in income will be realized, as some of it will leak out through savings and imports. Therefore, the actual total income increase is likely to be more than $50 billion (the initial increase in investment spending) but less than $250 billion (the theoretical maximum increase in income). Choice D captures this range of possibilities.

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