End Of CH Que NO: 5

Assume that the multiplier has a value of 3. Now assume that the government decides to increase aggregate demand in an attempt to reduce unemployment.

Assume that the multiplier has a value of 3. Now assume that the government decides to increase aggregate demand in an attempt to reduce unemployment. It raises government expenditure by £100 million with no increase in taxes. Firms, anticipating a rise in their sales, increase investment by £200 million, of which £50 million consists of purchases of foreign machinery. How much will national income rise? (Assume ceteris paribus.)

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