(Advanced Analysis) Assume That the MPC Is 0

question 38

Multiple Choice

(Advanced analysis) Assume that the MPC is 0.8 in an economy that has an aggregate supply curve with a slope of 1.Also, suppose that the price level is flexible downward.A decrease in investment spending of $10 billion will shift the aggregate demand curve leftward by

• A)$50 billion and decrease real GDP by $50 billion.
• B)$50 billion and decrease real GDP by $25 billion.
• C)$10 billion and decrease real GDP by $10 billion.
• D)$10 billion and decrease real GDP by $25 billion.

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Definitions:

Plowback Ratio

The proportion of earnings retained by a company after dividends have been paid out, often used to fund growth projects.

Intrinsic Value

The actual, underlying worth of an asset, investment, or company based on fundamental analysis without regard to its market value.

ROE

Return on Equity, a financial ratio indicating the profitability of a company relative to its shareholders' equity.

EPS

Earnings per share, a financial metric indicating the profitability of a company on a per-share basis.