Assume That the MPC Is 0

question 5

Multiple Choice

Assume that the MPC is 0.8. Assuming that only the multiplier effect matters, how will a decrease in government purchases of $150 billion shift the aggregate demand curve?

• A) It will shift the aggregate demand curve left by $120 billion.
• B) It will shift the aggregate demand curve left by $150 billion.
• C) It will shift the aggregate demand curve right by $150 billion.
• D) It will shift the aggregate demand curve left by $750 billion.

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Definitions:

Dividend Yield Ratio

A financial ratio that indicates how much a company pays out in dividends each year relative to its share price.

Total Dividend

The total amount of dividend that a company decides to pay out to its shareholders from its net income.

Common Stock

A type of equity security that represents ownership in a corporation and gives shareholders voting rights, often with the potential for dividends.

Acid-Test Ratio

A financial metric that assesses a company's ability to cover its short-term liabilities with its most liquid assets.