Question

When capital becomes more productive

		the marginal benefit of capital decreases and investment demand increases
		the marginal benefit of capital decreases and investment demand decreases
		the marginal benefit of capital increases and investment demand decreases
		the marginal benefit of capital increases and investment demand increases

If MPC = .75 and housing prices increase to increase consumption by $200 billion, then we would expect

		aggregate demand to shift to the left by $800 billion
		aggregate demand to shift to the right  by $150 billion
		aggregate demand to shift to the right  by $200 billion
		aggregate demand to shift to the right by $800 billion

Answer 1

1) When capital becomes more productive, there will be increase in marginal benefit of production because producers will be able to produce more output using same material as before. Additionally, it will induce producers to invest more in capital. Option D is correct.

2) MPC = 0.75

Increase in consumption = $200 billion

Spending multiplier = [1 / (1 - MPC)] = [1 / (1 - 0.75)] = 4

There will be net increase in aggregate demand by: Change in consumption * Multiplier = $200 billion * 4 = $800 billion

Option D is correct.