Answer:
$50 billion
Explanation:
The net effect on aggregate demand of the additional investment spending will be derived by multiplying the increased spending by the Multiplier.
Where MPC is the marginal propensity to consumer, and
MPS, the marginal propensity to save.
Therefore the multiplier = = 2.5
Accordingly, the increase in aggregate demand as a result of the increase in the investment
= 2.5 * $20 billion
= $50 billion
Question:
The question is incomplete. See the complete question below and the graph.
You are given the following data;
Cost = C = $12,000.00
w = $100.00 per unit of labor
r = $100.00 per unit of capital
These data are used to construct the isocost line (C) in the diagram to the right. Suppose the wage increases to $200.00 but that the firm chooses to keep using the same amount of labor and capital to produce 200 units of output. Given this new set of factor prices (w'=$200.00, r = $100.00), how much have costs changed if the set of input choices remains at point A? Enter a numeric response using a real number rounded to two decimal places.)
Answer:
Cost change = $6,000
Explanation:
Given Data:
Cost = C = $12,000.00
w = $100.00 per unit of labor
r = $100.00 per unit of capital
Calculating the cost incurred at point A using the equation of iso-costline C¹, we have;
C = wl + rk
where;
C = total cost
w = price of labor = $100
l = labor = 60 unit from the graph
k = capital = 60 unit from the graph
r = price of capital = $100
Substituting into the formula, we have
C = wl + rk
= 100*60 + 100*60
= 6000+6000
= $12,000
For increase in wages(w= $200, r = $100) with same amount of labor and capital, the cost incurred becomes;
C = wl + rk
= 200*60+100*60
= 12,000 + 6000
= $18,000
Therefore,
Cost change = 18000-12000
= $6,000
See the attached graph.
