Suppose Lower Expectations Lead to a Decrease of $240 in Desired

question 11

Multiple Choice

Suppose lower expectations lead to a decrease of $240 in desired investment in the economy and the marginal propensity to consume is 0.75. Table 10.2
$\begin{array}{c}\begin{array}{|l|}\hline\\ \text {Spending Cycles}\\\hline \text {First-cycle}\\\text {spending}\\\hline \text {Second-cycle}\\\text {spending}\\\hline \text {Third-cycle}\\\text {spending}\\\hline \end{array}\begin{array}{c|}\hline \text {Change in this Cycle's Spending}\\\text { and Income}\\\hline\\\quad\quad\quad\quad\quad\quad\quad\quad -\$ 240 \\\hline\\\\\hline\\\\\hline\end{array}\begin{array}{c|}\hline \text {Cumulative Decrease in }\\ \text {Spending and Income}\\\hline\\\quad\quad\quad\quad\quad\quad\quad\quad -\$240\\\hline\\\\\hline\\\\\hline\end{array}\end{array}$


In Table 10.2,what is the cumulative decrease in expenditure by the end of the third cycle?

• A)-$960.00.
• B)-$240.00.
• C)-$420.00.
• D)-$555.00.

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Definitions:

Cash Equivalent

Short-term, highly liquid investments that are easily convertible to known amounts of cash and very close to their maturity.

Accruals

Accounting method that records revenues and expenses when they are earned or incurred, regardless of when the cash transaction occurs.

Indirect Method

A method used to prepare the cash flow statement where net income is adjusted for changes in balance sheet accounts to calculate the cash from operating activities.

Term Deposit

A bank deposit with a fixed term and interest rate, where the money must remain deposited for a specified duration, incurring penalties for early withdrawal.