Consider a Model in Which Output Is Demand- Determined

question 28

Multiple Choice

Consider a model in which output is demand- determined. If the marginal propensity to spend out of national income is 0.4, then a $0.6 billion decrease in government purchases will cause equilibrium national income to by approximately .

• A)decrease; $0.24 billion
• B)increase; $1.00 billion
• C)decrease; $1.50 billion
• D)decrease; $1.00 billion
• E)increase; $1.50 billion

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Definitions:

Fixed Overhead

Expenses that remain constant regardless of the production or sales volume, including items like lease payments, wages, and insurance premiums.

Inventory

The total amount of goods and materials held by a company for the purpose of resale or production, including raw materials, work-in-progress, and finished goods.

GAAP

Generally Accepted Accounting Principles, the standardized set of accounting rules, practices, and procedures used in preparing financial statements in the U.S.

Product Costing

Product costing involves determining all expenses related to the creation of a product, including materials, labor, and overhead, to establish its total cost.