A decrease in nonincome-determined spending leads to:
A) no change in the level of economic activity.
B) an increase in the level of income-determined spending.
C) a decrease in the level of economic activity that is equal to the decrease in nonincome-determined spending.
D) a decrease in the level of economic activity that is greater than the decrease in nonincome-determined spending.

Question

Quizplus · Accepted Answer

A decrease in nonincome-determined spending (such as investment, government spending, or exports) leads to a decrease in the overall level of economic activity. This initial decrease then results in a further reduction in income and consumption, leading to a multiplier effect. Therefore, the total decrease in economic activity is greater than the initial decrease in nonincome-determined spending.

A Decrease in Nonincome-Determined Spending Leads To