In the Third Quarter of 2008, Investment in the U

question 416

Multiple Choice

In the third quarter of 2008, investment in the U.S. totalled $1.4 trillion and in 2007, investment was $1.3 trillion. In addition, third quarter real GDP was $11 trillion. Suppose the MPC in the U.S. is 0.80.
Ignoring the effects of imports and taxes, the multiplier is and__________ the change in investment will decrease equilibrium expenditure by __________.

• A) 2; $200 million.
• B) 2; $1 trillion.
• C) 5; $1 trillion.
• D) 5; $500 million.

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Definitions:

Earnings and Profits

A measure used for tax purposes, representing a corporation's net income plus or minus certain tax-preferred items.

Cash Dividend

A payment made by a corporation to its shareholders, usually in cash, out of its profits or reserves.

Basis

The amount of investment in property for tax purposes, used to calculate gain or loss upon sale or disposition of the property.

Subchapter S

A designation of corporation that meets specific Internal Revenue Service criteria, allowing it to be taxed as a pass-through entity, avoiding double taxation.