If the MPC = 0

question 1

Multiple Choice

If the MPC = 0.80,the cumulative decrease in total spending resulting from an initial $150 recessionary gap would be

• A)$150.
• B)$187.5.
• C)$500.
• D)$750.

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Definitions:

Hedging Instrument

Any financial derivative or other contract used to offset the risk of changes in the value of an asset, liability, or future transaction.

Hedged Item

An asset, liability, firm commitment, or anticipated transaction identified by an entity to manage risks through hedging activities.

Cash Flow Hedge

A form of hedge accounting that aims to offset exposures to variability in cash flows, attributable to a particular risk associated with a recognized asset or liability.

Forward Contract

A financial contract between two parties to buy or sell an asset at a specified future time at a price agreed upon at the time of the contract.