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Suppose an increase in consumer confidence leads to a $1,000 increase in autonomous consumption. Suppose the propensity to consume is 0.4, the propensity to invest
Suppose an increase in consumer confidence leads to a $1,000 increase in autonomous consumption. Suppose the propensity to consume is 0.4, the propensity to invest is 0.2, and the propensity to import is 0.1. By how much will real income in this economy increase due to the increase in consumer confidence once the multiplier effect has set in?
a.$500.
b.$1,000.
c.$2,000.
d.$4,000.
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