Suppose That MPC = 0

question 103

Multiple Choice

Suppose that MPC = 0.8 and MPI = 0. According to the Keynesian multiplier, an increase of $20 million in government purchases will

• A)increase real GDP by $16 million.
• B)decrease real GDP by $16 million.
• C)increase real GDP by $100 million.
• D)decrease real GDP by $100 million.
• E)have no impact on real GDP.

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Definitions:

Manufacturing

The process of converting raw materials or components into finished goods through the use of tools, machinery, and labor.

Wholesale

The sale of goods in large quantities at lower prices, typically to retailers who then sell them to the final consumer.

Retail

The sale of goods to the public in relatively small quantities for use or consumption rather than for resale.

Reorder Point

The inventory level at which an order should be placed to replenish stock before it runs out, based on lead time and demand.